THE  CHRONICLES 

OF  AMERICA  SERIES 
ALLEN  JOHNSON 


n 


MASTERS  OF  CAPITAL 


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)f  California  i 

Regional 

Facility 


THE   MASTERS  OF  CAPITAL 


TEXTBOOK   EDITION 

THE  CHRONICLES 

OF  AMERICA  SERIES 

ALLEN  JOHNSON 

EDITOR 

GERHARD  R.  LOMER 

CHARLES   W.   JEFFERYS 

ASSISTANT  EDITORS 


In  this  "book,  "Masters  of  Capital", 
we  have  a  most  remarkable  "Time  and  Mo- 
tion Study"  of  Capitalism  in  action.  In 
fact,  it  is,  in  effect,  a  copy  of  their 
formula,  given  us  by  one  of  the  lfkeepers 
of  the  seals  and  records ",  with  accompany- 
ing exhibits  of  its  effects,  before  and 
after.  If  proof  of  the  pudding  is  really 
in  the  eating*  it  might  be  mentioned  that 
I  have  seen  and  tasted  most  of  the  fla- 
vors, having  lived  a  long  life  in  the 
railroad  atmosphere,  and  observed  most 
kindred  and  related  activities,  from  the 
tine  of  my  entering  their  service  in  1883 
to  the  date  of  the  last  newspaper. 

H.  Gr.  Wells  has  well  reminded  us 
that  "human  destiny  is  a  race  between  or- 
dered thought  made  effectively  education 
on  the  one  side,  and  catastrophe  on  the 
other.  So  far,  catastrophe  seems  to  be 
leading. " 

We  observe,  both  by  definition,  ob- 
servation and  experience,  that  Capitalism 
is  the  name  that  has  been  given  to  the 
process  by  which  capital  is  purloined  and 
manipulated  in  the  control  of  the  proces- 
ses and  people  by  whom  it  is  created. 


In  the  theory  and  purpose  of  its 
operation, the  process  is  continuous;  "but 
it  is  subject  to  creeping  paralysis,  in- 
herent in  the  nature  of  its  formula  of 
increasing  prices  and  reducing  wages, 
thus  destroying  its  own  market,  concur- 
rently rendering  it  impossible  to  attain 
or  maintain  the  mathematically  necessary 
trial  "balance  which  is  the  recurrent  test 
of  all  "business  enterprise,  and  upon 
which  its  industrial,  commercial,  social 
and  ethical  obligations  and  survival  de- 
pend. It  logically  and  mathematically 
typifies,  inevitably  and  invariably,  a 
progressive  cannibal's  banquet  in  which 
each  participant  must  eat  or  be  eaten,  - 
he  must  be  the  dinner  or  the  diner. 

Norman  Cousins  in  his  book,  "Modern 
Man  is  Obsolete",  pictures  the  status  to 
which  it  has  brought  us,  and  Prof.  Ralph 
Barton  Perry,  in  his  book,  "One  World  In 
The  Making",  presents  for  us  a  "bill  of 
particulars",  as  the  lawyers  might  say, 
that  must  be  faithfully  observed  in  the 
"One  World  In  The  Making". 

Fraternally  submitted, 


THE 
MASTERS  OF  CAPITAL 


NEW  HAVEN:   YALE  UNIVERSITY  PRESS 

TORONTO:    GLASGOW,    BROOK   &   CO. 

LONDON:    HUMPHREY     MILFORD 

OXFORD     UNIVERSITY     PRESS 


Copyright,  1919,  by  Yale  University  Press 


CONTENTS 

I.    THE  RISE  OF  THE  HOUSE  OF  MORGAN    Page     1 

II.    MORGAN  AND  THE  RAILROADS  "     19 

III.  THE  IRONMASTERS  "     35 

IV.  STANDARD  OIL  AND  WALL  STREET  "     52 
V.    THE  STEEL  TRUST  MERGER  "    70 

VI.    HARRIMAN  AND  HILL  "     89 

VII.    THE  APEX  OF  "HIGH  FINANCE"  "   109 

VIII.    THE  PANIC  OF   1907  AND   AFTER  "   134 

IX.    WALL  STREET  AND  THE  WORLD  WAR        "   155 

APPENDIX  "  181 

BIBLIOGRAPHICAL  NOTE  "   221 

INDEX  "   225 


2045513 


THE  MASTERS  OF  CAPITAL 


CHAPTER 

THE    RISE    OF    THE    HOUSE    OF    MORGAN 

THE  old  meaning  of  the  word  "capital"  —  that  is, 
an  accumulation  of  wealth,  either  money  or  sub- 
stantial property,  for  use  in  the  production  of  more 
wealth  —  has  been  greatly  enlarged  within  recent 
times.  In  earlier  days,  under  the  crude  methods 
then  prevailing,  a  given  manufacturing  plant  might 
earn,  say,  ten  per  cent  on  its  invested  capital;  but 
when  power  machinery  and  improved  processes 
came  into  use  and  earnings  increased,  say,  to  twenty- 
five  or  forty  per  cent,  the  practice  began  of  putting 
a  valuation  on  this  increased  earning  power,  and 
the  "value"  of  a  given  property,  instead  of  being 
based  on  its  original  or  replacement  cost,  came  to 
be  measured  by  its  capacity  to  earn  profits. 

Upon  this  new  basis,   "capital,"  as  expressed 


2  THE  MASTERS  OF  CAPITAL 

through  the  issue  of  corporate  stocks  and  bonds, 
was  created  by  leaps  and  bounds.  As  the  indus- 
try of  the  community  became  more  efficient  and 
the  unit  of  effort  brought  forth  greater  results,  cor- 
porate securities  were  created  in  an  ever  increas- 
ing ratio.  Then,  as  the  new  custom  became  more 
firmly  established,  it  was  found  that  the  limit  of  cap- 
italization was  by  no  means  reached  when  present 
earning  power  alone  was  capitalized,  for  in  a  grow- 
ing country  like  the  United  States,  with  population 
practically  doubling  every  generation,  future  earn- 
ing power  was  seen  to  be  vastly  greater.  So  the 
capitalists  quite  naturally  took  the  further  step 
and  issued  corporate  stocks  and  bonds  based  on 
estimated  future  earnings. 

Naturally,  this  modern  practice  of  preempting 
or  capitalizing  probabilities  was  overdone.  Such  a 
process  inevitably  invited  speculation ;  and  "  boom  " 
periods,  with  recurring  lapses  and  setbacks,  became 
characteristic  of  the  times.  Eventually,  the  capi- 
talists learned  that  this  new  capital,  which  repre- 
sented not  only  accumulated  wealth  and  current 
earnings  but  the  future  possible  earning  power  of 
the  community  generally,  must  be  bolstered  up  and 
insured  by  some  artificial  process.  So  long  as  nor- 
mal growth  in  population  and  industry  continued, 


THE  RISE  OF  THE  HOUSE  OF  MORGAN    3 

the  capitalists  could  feel  fairly  secure,  but  dur- 
ing industrial  and  banking  crises,  crop  failures,  or 
other  adversities,  the  earnings  of  capital  might 
decline  to  such  a  point  as  seriously  to  impair  the 
valuation.  Thus  there  arose  among  capitalists  — 
large  and  small  —  a  widespread  demand  for  legisla- 
tion and  public  aid  to  protect  the  integrity  of  the 
values  which  they  had  set  up  —  a  demand  that  cus- 
toms tariffs  be  made  more  rigid  than  before  to  pre- 
vent foreign  competition  and  for  other  measures  to 
preserve  the  status  quo  of  the  new  dispensation. 

The  railroads,  during  the  decade  after  the  Civil 
War,  were  the  most  conspicuous  beneficiaries  of 
the  new  process;  but  when  inventions  came  in, 
such  as  the  telephone  and  electric  light  and  power, 
as  well  as  numerous  other  devices  for  economiz- 
ing time  and  labor,  the  current  results  and  future 
possibilities  of  all  these  likewise  were  capitalized. 
In  case  of  public  utilities  the  supposed  value  of  the 
franchise  was  made  the  primary  basis  of  capitaliza- 
tion. In  the  quarter  century  from  1890  to  1915, 
the  total  capitalization  in  the  form  of  stocks  and 
bonds  of  public  service  corporations  in  the  United 
States  grew  from  less  than  two  hundred  million 
to  nearly  twenty  billion  dollars. 

This  new  capitalism  is  a  phenomenon  of  far- 


4  THE  MASTERS  OF  CAPITAL 

reaching  magnitude  in  modern  society.     In  the  ag- 
gregate it  represents   a  valuation  of  about  one 
hundred  billion  dollars  in  a  nation  whose  entire 
wealth  is  roughly  estimated  at  something  more, 
than  twice  this  sum.    When  it  is  remembered  that 
as  recently  as  1890  the  wealth  of  the  nation  was 
estimated  at  only  sixty-five  billions,  and  the  cor- 
porate capital  at  that  time  was  only  about  twenty- 
five  billions,  the  significance  of  the  development 
during  the  last  generation   will  be  appreciated. 
And  when  it  is  further  realized  that  in  the  past 
ynalf  century  not  only  a  new  system  of  capitalizing 
/  wealth-producing  forces  has  grown  up,  but  also  a 
/     concentration  of  control  in  small  groups  of  powerful 
'        men,  the  subject  becomes  intensely  interesting. 

The  great  financial  houses  of  Wall  Street,  which 
are  today  most  closely  identified  with  the  organi- 
zation and  control  of  the  great  corporate  enter- 
prises of  the  country,  nearly  all  started  as  firms 
engaged  in  the  dry-goods  or  clothing  business.  Not 
only  the  Morgans,  but  the  Brown  Brothers,  Kuhn, 
Loeb  and  Company,  the  Seligmans,  and  other 
old  private  banking  houses  of  New  York,  began 
in  this  way.  It  was  a  natural  beginning,  for  prior 
to  the  period  of  modern  machinery  capital  in  large 


THE  RISE  OF  THE  HOUSE  OF  MORGAN    5 

masses  was  employed  chiefly  by  merchants,  and 
the  wholesale  handling  of  merchandise  was  among 
the  most  profitable  of  undertakings.  Before  the 
idea  of  capitalizing  potential  possibilities  took  pos- 
session of  the  minds  of  men,  the  purely  competi- 
tive commercial  business,  such  as  the  wholesale 
merchandising  of  goods,  still  held  the  center  of 
the  stage,  both  in  this  country  and  Europe.  Even 
Nathan  Rothschild,  the  most  famous  financier  of 
the  early  nineteenth  century,  had  made  his  start  by 
financing  the  materials  and  products  of  the  early 
English  cotton  mills.  So  also  in  America,  the 
capital  of  the  day  tended  to  gather  in  the  hands 
of  great  merchants  whose  stock  in  trade  was  very 
largely  cloth  or  manufactures  from  cloth. 

Most  Americans  have  forgotten  all  this  early  his- 
tory. Our  "  merchant  princes  "  —  only  sixty  years 
ago  models  of  aspiration  for  every  American  boy  — 
have  passed  out  of  mind.  The  business  of  security 
making  and  selling  —  sixty  years  ago  a  small,  local, 
irregular  peddling  trade  as  compared  to  the  busi- 
ness of  the  big  American  merchant  —  now  looms  so 
large  that  it  seems  to  have  been  always  important. 
In  England  they  remember  better.  The  men  whom 
we  in  this  country  call  "private  bankers,"  such  as 
the  Rothschilds,  the  Barings,  and  the  Morgans,  are 


6  THE  MASTERS  OF  CAPITAL 

not,  even  today,  known  as  bankers  over  there, 
but  as  "merchants. "  They  are  the  lineal  business 
descendants  of  the  great  East  India  Company  of 
olden  times. 

In  the  United  States  one  particular  section  de- 
veloped the  international  merchant.  Before  the 
days  of  the  American  Revolution  the  sharp-eyed, 
bony  men  of  New  England  had  gone  out  scouring 
the  coasts  of  Africa  and  the  islands  of  the  sea  for 
merchandise.  There  were  no  better  traders  in  the 
world  than  they,  and  there  are  probably  no  bet- 
ter traders  than  the  Yankee  now.  Then,  after  the 
shipping  troubles  caused  by  the  War  of  1812,  the 
men  and  money  of  New  England  turned  to  the  new 
business  of  the  manufacture  of  cloth;  and  thus  was 
laid  the  foundation  of  the  great  modern  industry 
of  New  England,  the  manufacture  of  cotton  goods. 

In  the  year  1811,  a  sixteen-year-old  dry-goods 
clerk,  George  Peabody,  was  thrown  out  of  em- 
ployment by  the  burning  of  his  brother's  little 
store  in  the  old  town  of  Newburyport,  Massa- 
chusetts. He  then  went  with  an  uncle  to  George- 
town, D.  C.  (since  incorporated  with  Washington), 
and  opened  a  small  retail  dry-goods  store  there. 
After  some  years  he  moved  to  Baltimore  and  es- 
tablished branches  in  Philadelphia  and  New  York. 


THE  RISE  OF  THE  HOUSE  OF  MORGAN    7 

Finally,  in  1837,  at  the  age  of  forty-two,  he  went 
to  London  and  founded  there  the  merchant  bank- 
ing house  of  George  Peabody  and  Company,  which 
later  became  J.  S.  Morgan  and  Company. 

George  Peabody's  departure  for  London  was  not 
in  itself  notably  interesting  at  the  time.  In  London 
he  continued  to  be  a  "merchant "  just  as  he  had  been 
in  this  country,  but  in  establishing  himself  in  the 
greatest  mercantile  and  banking  center  in  the  world 
he  was  really  making  an  advance  along  unusual  lines. 
The  kind  of  enterprise  he  founded  is  excellently 
described  by  his  biographer,  Fox-Bourne: 

In  London  and  in  parts  of  England,  he  bought  British 
manufactures  for  shipment  to  the  United  States;  and 
the  ships  came  back  freighted  with  every  kind  of  Ameri- 
can produce  for  sale  in  England.  To  that  lucrative 
account,  however,  was  added  one  far  more  lucrative. 
The  merchants  and  manufacturers  on  both  sides  of 
the  Atlantic,  who  transmitted  their  goods  through  him, 
sometimes  procured  from  him  advances  on  account  of 
the  goods  in  his  possession  long  before  they  were  sold. 
At  other  times  they  found  it  convenient  to  leave  large 
sums  in  his  hands  long  after  the  goods  were  disposed  of, 
knowing  that  they  could  draw  whenever  they  needed, 
and  that  in  the  meantime  their  money  was  being  so 
profitably  invested  that  they  were  certain  of  a  proper 
interest  on  their  loans.  Thus  he  became  a  banker  as 
well  as  a  great  merchant,  and  ultimately  much  more  of 
a  banker  than  a  merchant. 


8  THE  MASTERS  OF  CAPITAL 

In  London,  the  chief  financial  center  of  the 
world,  George  Peabody  represented  the  greatest 
and  most  profitable  field  for  the  investment  of 
capital  —  the  American  continent,  as  yet  prac- 
tically unscratched.  Literally  millions  of  square 
miles  of  the  richest  farming  and  mineral  lands 
were  there  to  be  had  for  the  asking;  valueless  it  is 
true  until  populated,  but  potentially  of  vast  value. 
The  men  who  acquired  or  preempted  this  vast  El 
Dorado,  equipped  it  with  power  machinery,  and 
the  means  of  transportation,  thus  setting  labor 
to  work,  would  create  values  which  would  mount 
for  generations  to  come.  Untold  wealth  would 
continuously  flow  into  their  coffers. 

To  English  and  continental  capital  this  prospect 
was  the  dream  of  the  ages.  No  such  outlook  or 
opportunity  had  ever  come  to  England  or  the  old 
countries.  The  natural  resources  of  England  were 
already  preempted  when  modern  inventions  first 
began  to  come  into  use;  the  rich  farming  lands 
and  rural  regions,  while  undeveloped,  were  and  for 
ages  had  been  in  the  possession  of  a  rich  land-hold- 
ing class;  labor  could  not  be  applied  to  them  and 
the  modern  generation  of  capitalists  found  no  ex- 
traordinary opportunities  there  for  the  produc- 
tion of  wealth.  Thus  English  capital  inevitably 


THE  RISE  OF  THE  HOUSE  OF  MORGAN    9 

turned  to  America,  for  America  had  few  or  no  cash 
resources  and  any  development  of  the  country  on 
a  large  scale  must  be  carried  out  by  those  who 
had  the  means.  There  was  little  capital  anywhere. 
Men  were  busily  engaged,  all  along  the  Atlantic 
seaboard,  making  their  living  in  the  ordinary,  old- 
fashioned  way,  and  were  not  bent,  to  any  great 
degree,  on  amassing  large  fortunes.  The  specu- 
lative era  in  America  had  not  yet  arrived,  and, 
though  manufacturing  had  begun,  we  were  still  — 
in  the  fourth  decade  of  the  century  —  a  nation  of 
planters  and  farmers. 

When  Peabody  took  up  his  residence  in  London, 
European  capitalists  were  already  competing  for 
the  opportunity  to  exploit  American  enterprises. 
Strong  foreign  houses  were  forming  financial  con- 
nections between  London  and  New  York.  The 
Rothschilds  had  sent  August  Belmont  to  represent 
them  in  New  York  in  the  same  year  that  Peabody 
had  settled  in  London.  The  Barings  had  married 
into  a  Philadelphia  family  in  the  early  years  of 
the  century  and  were  also  financially  interested 
in  the  United  States.  Peabody,  nevertheless,  set 
out  to  be  the  chief  representative  of  America  in 
England.  Every  year  he  made  a  point  of  getting 
the  leading  men  of  both  countries  together,  and 


10  THE  MASTERS  OF  CAPITAL 

his  Fourth  of  July  dinners  in  London  grew  to 
be  notable  occasions  for  promoting  friendliness 
between  the  business  interests  of  England  and  the 
United  States. 

Peabody  never  aspired  to  be  an  originator  or  pro- 
moter of  enterprises.  This  work  he  left  to  others. 
His  business  was  that  of  the  financier,  a  "master 
of  capital. "  In  this  field  his  success  was  enormous 
for  the  times,  and  his  name  grew  constantly  in  Eng- 
lish favor.  He  finally  amassed  a  fortune  of  twenty 
million  dollars,  became  the  greatest  philanthropist 
of  his  time,  refused  a  title  of  nobility  from  Queen 
Victoria,  and  died  in  1869  in  the  possession  of  the 
thorough  confidence  of  the  English  investing  pub- 
lic. After  his  death,  his  statue  was  set  up  in  the 
London  financial  district,  not  far  from  the  dingy 
little  spot  at  Wanford  Court  which  had  been  his 
office  during  his  entire  London  business  life. 

When  Peabody  retired,  in  1864,  Junius  S.  Mor- 
gan became  the  head  of  the  business.  Morgan  was 
another  Yankee  dry-goods  trader  —  a  member  of 
the  firm  of  J.  M.  Beebe  and  Company  of  Boston 
—  who  had  been  taken  into  partnership  by  Pea- 
body  ten  years  before.  He  was  now  about  fifty-one 
and  was  fully  capable  of  carrying  on  the  high  tra- 
ditions of  the  Peabody  firm  —  doing  international 


THE  RISE  OF  THE  HOUSE  OF  MORGAN  11 

commercial  banking,  holding  deposits  of  customers, 
and  buying  and  selling  securities.  The  firm  placed 
considerable  issues  of  American  railroad  bonds 
in  London  and  negotiated  a  loan  to  Chile.  The 
name  of  George  Peabody  and  Company  ended  with 
the  death  of  Peabody,  according  to  his  own  wish. 
But  the  business  was  carried  on  without  interruption 
under  the  name  of  J.  S.  Morgan  and  Company. 

Junius  Morgan  had  a  son,  John  Pierpont  by  name, 
born  in  Hartford,  Connecticut,  in  1837,  when  his 
father  was  in  the  dry-goods  business  there.  This 
son  was  educated  partly  at  the  English  High  School 
in  Boston  and  had  finished  his  education  at  the  Uni- 
versity of  Gottingen  in  Germany.  After  leaving 
the  University  he  had  entered  his  father's  office  in 
London.  He  was  an  extraordinary  mathematician 
and  had  been  strongly  tempted  to  take  up  the  career 
of  professor  of  mathematics.  But  his  father  thought 
otherwise,  and  in  the  offices  of  George  Peabody  and 
Company  young  Pierpont  got  his  first  training  in 
the  technicalities  of  commercial  banking  and  no 
doubt  began  the  development  of  that  unusual  ca- 
pacity for  accurate  and  quick  decision  which  so 
strongly  characterized  his  entire  career. 

It  was  in  1857,  the  year  of  a  great  financial  panic 
in  the  United  States,  that  John  Pierpont  Morgan. 


12  THE  MASTERS  OF  CAPITAL 

a  tall,  taciturn  young  man  of  twenty,  stepped  on 
the  stage  of  American  business.  At  that  time  the 
house  of  George  Peabody  and  Company  was  doing 
its  American  business  through  the  New  York  firm 
of  Duncan,  Sherman  and  Company,  and  this  firm 
was  so  seriously  crippled  in  the  financial  crisis  that 
in  order  to  save  the  situation  George  Peabody 
and  Company  had  to  appeal  to  the  Bank  of  Eng- 
land for  assistance.  This  experience  impressed  the 
London  house  with  the  vital  importance  of  closer 
control  of  its  American  business,  and  it  was  decided 
to  send  young  Pierpont  Morgan  to  represent  the 
firm  in  New  York  as  cashier  of  Duncan,  Sherman 
and  Company. 

In  the  offices  of  Duncan,  Sherman  and  Com- 
pany, Pierpont  Morgan  met  Charles  H.  Dabney, 
a  partner  in  the  firm  and  also  the  accountant.  It 
was  through  association  with  Dabney  that  Mor- 
gan acquired  his  remarkable  and  accurate  knowl- 
edge of  bookkeeping  and  accounting.  But  the  con- 
nection of  the  Peabody  firm  with  Duncan,  Sherman 
and  Company  was  not  destined  to  last  very  long. 
In  1864,  the  year  in  which  George  Peabody  retired 
and  was  succeeded  by  Junius  S.  Morgan,  Pierpont 
Morgan  and  Dabney  formed  a  new  firm  under  the 
name  of  Dabney,  Morgan  and  Company,  with 


THE  RISE  OF  THE  HOUSE  OF  MORGAN  13 

offices  in  Exchange  Place,  New  York.  This  new 
firm  became  the  correspondents  of  J.  S.  Morgan  and 
Company  of  London.  A  few  years  later,  Duncan, 
Sherman  and  Company  failed  and  faded  from  view. 

The  house  of  Dabney,  Morgan  and  Company 
built  up  an  excellent  business  in  foreign  exchange 
and  in  the  sale  of  miscellaneous  securities  and  was 
no  doubt  financially  successful,  for  when  Dabney 
retired  he  was  currently  reported  to  have  taken  a 
substantial  fortune  out  of  the  business.  But  the 
house  had  done  nothing  spectacular  or  striking; 
it  was  not  classed  with  the  big  bankers  of  the 
Street;  and  its  main  prestige  seems  to  have  been 
based  simply  on  its  connection  with  the  strong 
London  firm  of  J.  S.  Morgan  and  Company.  But 
in  the  year  1871  a  change  came.  Dabney  retired, 
the  firm  was  dissolved,  and  young  Morgan  became 
a  partner  with  the  Drexels  of  Philadelphia,  under 
the  firm  name  of  Drexel,  Morgan  and  Company. 
Anthony  J.  Drexel,  the  senior  partner,  then  per- 
sonally bought  the  southeastern  corner  of  Wall  and 
Broad  streets  and  built  the  Drexel  Building,  in 
which  the  new  firm  began  its  great  career. 

The  Drexels  were  sons  of  a  German  portrait 
painter  who  had  wandered  about  South  America 
and  Mexico  carrying  on  his  profession.  In  the 


14 

course  of  his  wanderings  in  the  United  States  he 
had  found  that  he  could  do  a  profitable  business 
buying  and  selling  state  bank  notes,  which  formed 
the  "wildcat"  currency  of  the  time.  In  1837,  the 
same  year  in  which  Peabody  moved  to  London, 
the  elder  Drexel  had  established  himself  in  Phila- 
delphia on  a  street  known  locally  by  the  signifi- 
cant name  of  the  "Coast  of  Algiers,"  where  he  laid 
the  foundation  of  a  great  business  in  buying 
bank  currency,  "shaving"  commercial  paper,  and 
financing  corporations. 

John  Pierpont  Morgan  was  thirty-four  years  old 
in  1871 ;  Anthony  Drexel,  his  principal  partner,  was 
forty -five  —  a  conservative,  intelligent,  and  popu- 
lar man.  There  were  four  other  members  in  the 
new  firm,  all  from  the  Drexel  house  in  Philadelphia. 
The  new  firm  had  advantageous  alliances:  on  one 
side  of  the  Atlantic,  one  of  the  richest  financial 
houses  in  America;  on  the  other,  the  great  English 
house  of  J.  S.  Morgan  and  Company,  in  close  touch 
with  English  capital  —  the  greatest  body  of  capi- 
tal in  the  world.  Its  advantages  were  clear;  but  it 
also  had  its  disadvantages.  In  the  chief  business 
of  the  day  —  the  funding  of  the  government  debt 
—  it  came  into  a  field  already  pretty  well  occupied. 

Some  years  before  the  combination  of  the  Drexels 


THE  RISE  OF  THE  HOUSE  OF  MORGAN  15 

and  the  Morgans  had  taken  place  and  while  Dab- 
ney,  Morgan  and  Company  were  still  doing  a  quiet 
banking  business,  a  financial  operation  of  vast  mag- 
nitude had  been  carried  on  in  America.  It  was  the 
flotation  of  the  American  Civil  War  debt.  This  debt 
had  been  placed  very  largely  through  Jay  Cooke, 
a  Philadelphia  banker  and  promoter.  Cooke  was 
the  typical  American  pioneer  of  his  time,  a  tremen- 
dous optimist,  a  great  employer  of  the  benefits  of 
friendship  in  high  places,  a  sort  of  financial  P.  T. 
Barnum,  who  exploited  the  Government's  securi- 
ties and  later  his  own.  He  organized  a  great 
bond-selling  campaign,  giving  "copy"  to  as  many 
as  eighteen  hundred  newspapers  at  a  time  and 
canvassing  through  his  agents  every  hamlet  in 
the  country.  Later,  he  was  naturally  the  man  who 
had  the  first  opportunity  to  handle  the  great  re- 
funding operations  in  government  bonds  which 
were  put  through  in  1871. 

Thus,  the  house  of  Jay  Cooke  and  Company  had 
forged  well  to  the  front,  and  had  built  up  very 
strong  connections  abroad.  During  the  Civil  War 
period,  English  capital  as  a  whole  had  not  flowed 
very  freely  to  the  Northern  States.  Tied  to  the 
South  by  the  long  established  bonds  of  her  cotton 
trade,  the  English  were  at  first  more  inclined  to 


16  THE  MASTERS  OF  CAPITAL 

buy  Confederate  than  Union  bonds.  The  Ger- 
mans, however,  as  a  whole  were  more  sympathetic 
towards  the  North,  as  the  great  body  of  German 
immigrants  following  the  uprising  of  1848  were 
Northerners  and  strong  supporters  of  the  Union. 
And  when  the  six  per  cent  Union  bonds  had  fallen 
to  sixty  cents  on  the  dollar  in  gold,  the  Germans, 
and  especially  the  rich  South  German  Jews,  began 
to  sell  their  own  and  invest  in  American  securities. 
To  the  German  Jew,  America  became  the  "land 
of  ten  per  cent. " 

Jay  Cooke  estimated  that  by  1869  at  least  a 
billion  dollars'  worth  of  United  States  bonds  were 
held  abroad,  of  which  a  large  proportion  were  held 
in  South  Germany.  This  large  investment  had 
established  a  new  and  powerful  business  interest 
in  America  —  the  Jewish  bond  dealers,  with  foreign 
connections  in  the  great  European  money  center 
of  Frankfort.  With  this  new  group  of  financial  mer- 
chants Cooke  had  naturally  allied  himself,  since 
the  greatest  source  of  English  capital  was  only  to 
be  tapped  through  the  Drexel-Morgan  interests. 

A  keen  contest  arose  between  the  Cooke  interests 
(with  their  German  Jew  backing)  and  the  Drexel- 
Morgan  interests  to  secure  the  contracts  for  the 
government  financing.  In  this  contest  Cooke  and 


THE  RISE  OF  THE  HOUSE  OF  MORGAN  17 

his  party  won  and  then  carried  through  an  extraor- 
dinarily difficult  operation  so  successfully  that 
the  Rothschilds  offered  themselves  as  Cooke's  as- 
sociates in  future  enterprises.  But  the  Morgan 
interests  kept  after  the  business,  and  subsequently, 
in  combination  with  Levi  P.  Morton,  secured  a 
half  interest  in  the  government  refunding  operation 
of  1873,  involving  a  sale  of  $300,000,000  of  bonds 
—  an  enormous  transaction  for  those  days.  Later, 
in  the  fall  of  the  same  year,  Jay  Cooke  and  Com- 
pany failed  and  this  left  the  field  in  the  United 
States  for  great  financial  operations  entirely  in  the 
hands  of  the  Drexel-Morgan-Morton  associates. 

By  this  time  the  house  of  Morgan  had  made 
great  strides.  But  its  position  as  the  leading  finan- 
cial house  of  America  had  not  come  about  alone 
through  the  downfall  and  eclipse  of  Jay  Cooke 
and  Company.  A  year  before  the  formation  of  the 
Drexel-Morgan  firm,  an  event  of  great  importance 
had  contributed  vastly  to  the  fame  and  standing 
of  J.  S.  Morgan  and  Company.  Toward  the  end 
of  October,  1870,  the  city  of  London  had  been 
stirred  by  the  news  that  J.  S.  Morgan  and  Com- 
pany had  taken  a  French  loan  of  250,000,000  francs. 
It  was  a  syndicate  operation  and  one  of  the  largest 
and  boldest  ever  known.  In  the  previous  month 


18  THE  MASTERS  OF  CAPITAL 

the  Germans  had  crushed  the  French  army  at 
Sedan,  had  taken  the  Emperor  Louis  Napoleon 
prisoner,  and  had  besieged  Paris.  The  only  au- 
thority for  the  loan  was  a  provisional  government 
at  Tours.  To  take  such  a  loan,  even  at  the  low 
price  of  about  eighty,  was  undergoing  some  risk 
in  view  of  the  circumstances.  One  thing,  however, 
was  very  clear:  the  hand  of  a  strong,  bold  man  was 
at  the  helm.  The  bonds  were  offered  to  the  public 
at  eighty-five;  they  advanced  at  once  in  price  and 
within  a  year  were  selling  fifteen  points  above  what 
they  cost  the  Morgan  firm.  And  the  syndicate  was 
believed  to  have  cleared  $5,000,000  by  the  trans- 
action. The  reputation  of  the  house  of  Morgan 
was  thus  well  established  among  European  bankers 
just  at  the  moment  when  Pierpont  Morgan,  the 
son  of  Junius,  came  to  the  front  in  combination 
with  the  powerful  Drexel  interests,  and  just  at 
the  moment  when  foreign  capital  was  ready  to 
pour  into  America  more  freely  than  ever  before. 
This  was  the  opportunity  of  the  house  of  Morgan. 
As  the  first  big  organizers  of  capital,  the  Mor- 
gans —  father  and  son  —  were  to  wield  a  mighty 
influence  in  American  finance. 


CHAPTER  II 

MORGAN   AND    THE    RAILROADS 

THE  work  of  Drexel,  Morgan  and  Company  in  the 
refunding  operations  of  the  government  debt,  after 
the  failure  of  Jay  Cooke  and  Company,  added 
greatly  to  American  prestige  abroad.  For  more 
than  forty  years  the  United  States  had  been  a 
burial  ground  for  British  capital.  State  bonds, 
Confederate  bonds,  railroad  bonds,  had  proved  to 
be  disastrous  investments.  But  now  one  single 
monumental  success  had  restored  faith  in  Ameri- 
can securities.  In  all,  about  $750,000,000  of  bonds 
were  refunded,  of  which  the  Morgans  handled  a 
large  part,  and  this  achievement  reopened  America 
to  British  investors.  In  1877  the  financial  mag- 
nates of  America  gathered  in  New  York  at  a  dinner 
to  give  thanks  to  Junius  S.  Morgan  for  "upholding 
unsullied  the  honor  of  America  in  the  tabernacle 
of  the  old  world, "  as  Samuel  J.  Tilden,  the  toast- 
master,  expressed  the  sentiment  of  the  hour. 


30  THE  MASTERS  OF  CAPITAL 

By  1879,  with  the  financing  of  the  war  debt  ac- 
complished, American  bankers  were  ready  to  turn 
to  a  new  field  of  activity.  But  leadership  in  the 
dawning  financial  era  was  to  fall  to  the  younger 
men.  August  Belmont,  who  represented  the  Roths- 
childs in  America,  was  now  sixty -three  years  old; 
Levi  P.  Morton,  who  had  been  Junius  Morgan's 
fellow  partner  in  the  dry-goods  firm  of  James 
M.  Beebe  and  Company  in  Boston,  was  fifty-five; 
Junius  Morgan  himself,  now  sixty-six  and  present- 
ing the  ponderous  figure  of  an  East  India  mer- 
chant prince  in  an  old  English  play,  was  retiring 
from  active  business  life.  The  younger  Morgan 
was  then  forty-two,  just  about  the  age  of  George 
Peabody  and  Junius  Morgan  when  they  began 
their  great  careers  in  London.  Hitherto  he  had 
been  merely  the  son  of  his  grim-mouthed  father. 
But  he  had  learned  the  tools  of  his  trade;  he  had 
watched  and  helped  to  operate  great  syndicates; 
and  he  was  now  well  equipped  to  take  his  place  in 
the  security  markets  of  America. 

Pierpont  Morgan  had  watched  the  expansion  of 
the  railroads  for  many  years.  He  had  witnessed  the 
most  spectacular  phenomenon  of  the  period,  for 
he  had  seen  Gould  and  Vanderbilt  accumulate 
their  colossal  fortunes  largely  by  the  manipulation 


MORGAN  AND  THE  RAILROADS         21 

of  railroad  properties.  But  he  had  taken  little 
part  in  the  battle  of  the  railroads.  Back  in  1869, 
the  firm  of  Dabney,  Morgan  and  Company  had 
helped  to  wrest  from  Gould  and  his  accomplices 
the  control  of  the  Albany  and  Susquehanna  Rail- 
road, which  was  turned  over  to  the  Delaware  and 
Hudson  Canal  Company.  Again  in  1878,  when  a 
rich  comb  manufacturer,  Adolph  Poppenhusen, 
had  collapsed  in  the  wild  exploit  of  gridironing 
Long  Island  with  railroad  lines,  Drexel,  Morgan  and 
Company  picked  up  for  a  nominal  sum  his  hold- 
ings, which  were  afterwards  to  be  merged  as  parts 
of  the  Long  Island  Railroad.  But  aside  from  these 
minor  incidents,  the  Morgan  firm  had  not  been 
active  in  railroad  financing  and  were  not  in  any 
sense  known  as  railroad  bankers. 

In  1879,  however,  an  incident  occurred  which 
brought  Morgan  directly  into  the  field  of  rail- 
road finance.  William  H.  Vanderbilt,  president  and 
chief  stockholder  of  the  New  York  Central  and 
Hudson  River  system,  was  then  being  harassed 
beyond  endurance.  Popular  suspicion  had  been 
excited  by  his  accumulation  of  a  fortune  of  one 
hundred  millions  in  ten  years;  and  the  New  York 
Legislature,  reflecting  public  indignation,  was  in- 
vestigating the  management  of  the  New  York 


22  THE  MASTERS  OF  CAPITAL 

Central  and  was  proposing  radical  control  of  rail- 
road management.  Besides,  the  rate  wars  between 
New  York  and  Chicago  were  then  raging.  Finally, 
to  add  to  these  vexations,  Jay  Gould  was  at- 
tempting blackmail  because  Vanderbilt  would  not 
take  him  into  the  New  York  Central  directo- 
rate. Vanderbilt's  friends  advised  him  strongly  to 
dispose  of  a  substantial  portion  of  his  stock  in  New 
York  Central  and  thus  avert  the  legislation  that 
was  aimed  at  him.  But  how  to  unload  his  vast 
holdings  was  a  problem.  To  throw  half  of  them 
on  the  market  would  result  only  in  a  panic;  to 
distribute  the  stock  by  private  sale  in  Wall  Street 
would  also  greatly  disturb  values.  Besides,  what 
banker  would  undertake  to  put  through  such  a 
gigantic  transaction? 

Vanderbilt  consulted  J.  Pierpont  Morgan,  and 
Morgan  devised  a  scheme  whereby  a  large  block  of 
New  York  Central  stock  could  be  sold  secretly  in 
England  without  in  any  way  disturbing  the  Amer- 
ican security  markets.  This  plan  was  adopted. 
The  Morgan  firm,  through  its  London  house,  formed 
a  syndicate  and  distributed  250,000  shares  of  the 
stock  to  permanent  investors  abroad.  The  trans- 
action was  kept  secret  for  a  time,  but  after  a  few 
months  the  details  were  all  published  in  the  New 


MORGAN  AND  THE  RAILROADS          23 

York  and  the  London  papers.  Vanderbilt  then  an- 
nounced that  a  large  part  of  the  great  sum  of  money 
he  had  received  had  been  reinvested  in  United  States 
government  bonds.  Thus,  at  one  stroke,  J.  Pier- 
pont  Morgan  not  only  solved  Vanderbilt's  difficult 
problem  and  allayed  public  criticism,  but  inci- 
dentally, it  was  said,  he  made  a  profit  for  his 
syndicate  of  more  than  three  million  dollars. 

The  financing  of  American  railroads  had  been 
left  hitherto  largely  in  the  hands  of  promoters 
whose  primary  interest  had  been  to  build  the 
greatest  possible  amount  of  railroad,  regardless  of 
whether  there  was  need  for  it  or  not,  and  sell  it  out 
for  the  highest  possible  price.  This  had  been  the 
programme  in  the  halcyon  days  after  the  Civil 
War  and  in  the  speculative  period  following  the 
panic  of  1873.  The  Northern  Pacific  had  been 
extended  westward  to  the  coast;  the  Atchison, 
Topeka  and  Santa  Fe  had  been  built  through  the 
deserts  of  Arizona  and  New  Mexico;  Gould  had 
radiated  his  more  or  less  dubious  lines  throughout 
sparsely  settled  sections  west  of  the  Mississippi; 
the  Union  Pacific  had  entered  upon  that  policy  of 
constructing  or  acquiring  branch  lines  and  feeders, 
which  a  few  years  later  was  its  financial  undoing. 
And  in  the  East  a  no  less  reckless  and  ill-advised 


24  THE  MASTERS  OF  CAPITAL 

policy  of  construction  had  been  going  on.  Most  of 
the  older  systems  were  carried  away  with  the  idea 
of  more  and  more  mileage,  more  and  more  branches, 
more  and  more  parallel  lines.  By  the  early  eighties 
about  twice  as  many  railroad  lines  had  been  built 
as  the  country  could  profitably  employ,  and  there 
had  been  issued  about  four  times  the  amount  of 
securities  that  the  country  could  pay  interest  or 
dividends  on.  In  1884,  Poor's  Manual,  the  rail- 
road authority  of  that  time,  stated  with  great 
positiveness  that  the  entire  capital  stock  of  the 
railroads  of  the  United  States  —  then  about  four 
billion  dollars  —  represented  "water."  It  esti- 
mated that,  in  the  three  years  ending  December 
31, 1883,  two  billions  of  capital  and  debt  had  been 
created,  and  that  the  "whole  increase  of  share 
capital  [about  one  billion]  and  a  portion  of  the 
/  bonded  debt  was  in  excess  of  construction." 

It  was  a  crucial  time  for  genuine  investors,  both 
at  home  and  abroad.  Thousands  of  these  inves- 
tors in  Great  Britain,  on  the  Continent,  and  in 
the  eastern  parts  of  the  United  States,  who  had 
supplied,  in  one  form  or  another,  the  cash  for  this 
vast  promotion  of  the  American  transportation 
system,  suddenly  found  their  securities  dwind- 
ling away.  There  was  urgent  need  for  a  strong 


MORGAN  AND  THE  RAILROADS         25 

representative  to  champion  their  interests.  After 
his  successful  underwriting  of  the  New  York  Cen- 
tral transaction,  Morgan  began  to  be  looked  upon  as 
a  rescuer  of  investors,  a  solver  of  difficult  financial 
problems.  And  he  stood  alone  in  this  regard.  The 
great  railroad  names  of  the  period  —  Jay  Gould, 
Russell  Sage,  Collis  P.  Huntington,  Calvin  Brice, 
and  others  —  connoted  expansion  and  specula- 
tion rather  than  wise  control  and  conservative 
management  of  railroad  properties. 

For  a  half  dozen  years  the  gigantic  structure  / 
of  inflated  railroad  capitalization  and  over  ex- 
pansion stood  —  somewhat  unsteadily  —  and  then 
the  crash  came.  By  1884  there  were  five  inde- 
pendent lines  operating  between  Chicago  and  the 
Atlantic  seaboard,  and  two  more  were  building. 
Three  roads  would  have  been  ample  for  all  the 
business.  Railroad  rates  were  torn  to  pieces;  pas- 
sengers traveled  from  New  York  to  Chicago  for 
a  dollar  a  head;  grain  was  handled  at  an  actual 
loss  of  fifty  per  cent.  Three  of  these  five  roads  were 
tottering  on  the  edge  of  bankruptcy,  one  had  gone 
bankrupt,  and  the  New  York  Central  was  on  the 
verge  of  cutting  down  its  dividends.  It  was  high 
time  for  something  of  a  constructive  nature  to 
be  done. 


26  THE  MASTERS  OF  CAPITAL 

In  the  summer  of  1885,  William  H.  Vanderbilt 
was  again  in  dire  need  of  a  friend.  The  West  Shore 
Railroad  was  about  to  begin  business  as  a  com- 
petitor of  the  Vanderbilt  lines.  The  Pennsylvania 
Railroad  interests  were  supposed  to  sympathize 
with  the  West  Shore  project,  for  the  reason  that  it 
promised  to  embarrass  seriously  their  chief  com- 
petitor. At  the  same  time  Vanderbilt  was  support- 
ing a  project  in  Pennsylvania  to  parallel  the  main 
line  of  the  Pennsylvania  Railroad.  Tht  West 
Shore,  according  to  the  custom  of  the  times,  had 
been  heavily  overcapitalized  and,  just  as  the  road 
was  nearing  completion,  the  company  was  dying 
for  want  of  cash.  Unless  the  Pennsylvania  interests 
or  some  other  strong  capitalists  should  come  to  the 
rescue,  it  evidently  could  not  survive.  Just  at  this 
juncture  Morgan  came  forward  with  the  remedy. 
He  arranged  to  sell  to  the  Pennsylvania  interests 
Vanderbilt's  competing  road  in  Pennsylvania  and 
to  sell  to  the  New  York  Central,  practically  at  cost, 
the  West  Shore  Railroad. 

Again,  when  the  Philadelphia  and  Reading  prop- 
erty, in  which  large  amounts  of  English  capital 
had  been  sunk,  was  facing  bankruptcy,  a  Morgan 
syndicate  furnished  the  millions  needed  for  its 
reorganization.  In  1887,  when  the  Baltimore  and 


MORGAN  AND  THE  RAILROADS          27 

Ohio  Railroad  was  suddenly  found  to  be  also  in  a 
state  of  financial  collapse,  the  Morgans  stepped  for- 
ward, found  new  capital  for  it,  and  commenced 
a  policy  of  reconstruction  —  a  policy,  however, 
which  was  interrupted  for  a  while  by  successful  op- 
position from  the  old  speculative  interests.  And 
a  year  later  a  Morgan  syndicate  reorganized  the 
Chesapeake  and  Ohio. 

Thus,  before  the  panic  of  1893,  the  firm  of  Drexel, 
Morgan  and  Company  built  up  its  reputation  as 
the  financier  and  reorganizer  of  mismanaged  prop- 
erties and  in  this  respect  stood  in  a  unique  position 
among  American  bankers.  The  great  Jewish  se- 
curity merchants  had  as  yet  little  hold  on  Ameri- 
can railways.  The  Rothschilds  were  content  to 
remain  a  close  ally  of  Morgan  rather  than  a  com- 
petitor, so  far  as  the  American  field  was  concerned. 
Kuhn,  Loeb  and  Company  had  not  yet  become  a 
railroad  power.  The  Speyers  were  strong  but  not 
masterful.  The  Seligmans,  who  had  been  promi- 
nent in  the  government  refunding  operations,  had 
not  become  a  leading  house  of  issue  for  railway 
securities.  Consequently,  when  more  than  half 
of  the  railroad  mileage  of  the  United  States  went 
into  the  hands  of  receivers,  investors,  both  foreign 
and  American,  looked  to  one  man  and  one  house 


28  THE  MASTERS  OF  CAPITAL 

to  defend  their  billions  of  investment  in  the  rail- 
roads —  the  house  of  Morgan  and  its  strong  bold 
personality,  John  Pierpont  Morgan,  now  known  as 
"Jupiter"  Morgan. 

First  came  the  reorganization  of  the  Southern 
Railway.  This  system,  whose  connecting  railroads 
had  been  snarled  into  an  inextricable  tangle  under 
the  Richmond  and  West  Point  Terminal  control  by 
a  group  of  New  York  and  Richmond  speculators, 
fell  into  financial  chaos.  Morgan  at  first  declined 
to  have  anything  to  do  with  the  mess.  But,  others 
having  tried  in  vain,  the  security  holders  finally  be- 
sought Morgan  to  undertake  the  task  on  his  own 
terms.  In  a  comparatively  short  time  a  Morgan 
syndicate  had  reorganized  the  company,  and  long 
before  the  dire  effects  of  the  panic  of  1893  and 
the  ensuing  depression  had  spent  themselves,  the 
Southern  Railway  system  had  advanced  far  on  its 
new  career  of  progress  and  prosperity. 

It  was  not  direct  financial  profit  for  himself  or 
his  firm  that  induced  Morgan  to  undertake  this 
reorganization ;  he  was  actuated  by  a  larger,  though 
not  entirely  unselfish,  motive.  He  felt  obliged  in 
self-defense  to  see  to  it  that  the  many  millions  of 
capital  (especially  that  of  English  investors)  should 
not  be  hopelessly  wiped  out.  A  firm  whose  greatest 


MORGAN  AND  THE  RAILROADS          29 

specialty  was  the  marketing  of  American  securities 
abroad  could  not  afford  to  have  these  securities 
pass  as  worthless  paper  before  the  eyes  of  the  world. 
The  fame  of  the  house  of  Morgan  in  London  and 
all  its  traditions  were  based  on  the  greatness  and 
wealth  of  America,  and  both  the  Morgans,  father 
and  son,  had  always  been  "bulls  on  America." 

With  the  successful  reorganization  of  the  South-  7 
ern  system,  Morgan  at  last  had  a  firm  grip  upon  < 
that  slippery  thing,  the  American  railroad  cor- 
poration. For  forty  years  American  railroad  pro- 
moters, reckless  optimists,  gigantic  thieves,  huge 
confidence  men  —  magnified  a  hundred  times  by 
the  size  of  their  transactions  —  had  juggled  and 
manipulated  and  exploited  this  great  business  for 
their  own  profit  and  the  general  loss  of  every  one 
else  concerned.  Morgan  had  been  watching  for 
twenty  years  this  manipulation  of  railroad  prop- 
erty. The  control  of  the  properties  lay  in  the  vot- 
ing power  of  the  stock;  and,  if  the  voting  power 
could  not  be  controlled,  little  could  be  accom- 
plished against  opposition.  His  attempt  to  recon- 
struct the  Baltimore  and  Ohio  in  1887  was  defeated 
entirely  because  the  controlling  interests  check- 
mated him  by  voting  his  representative  out.  He 
devised  a  plan  whereby  he  himself  would  control  the 


30  THE  MASTERS  OF  CAPITAL 

voting  power.  Before  undertaking  a  reorganiza- 
tion or  finding  the  new  capital,  he  provided  for 
a  "voting  trust,"  a  device  which,  for  a  number  of 
years,  placed  in  the  hands  of  a  few  trustees  selected 
by  himself  the  entire  voting  power  of  the  stock. 
This  scheme  was  followed  in  the  reorganization 
of  the  Southern  Railway  and  was  adopted  in  all 
later  instances. 

The  next  drastic  reorganization  was  that  of  the 
Erie  system.  Before  undertaking  this  task  Mor- 
gan was  particularly  careful  to  concentrate  control 
in  his  own  hands.  Years  before,  J.  S.  Morgan  and 
Company  had  been  the  fiscal  agents  of  the  Erie  in 
London  and  had  placed  large  amounts  of  Erie 
bonds  among  British  investors.  Morgan  was  there- 
fore particularly  anxious  to  protect  these  bond- 
holders, and  in  the  scheme  which  he  devised  he 
saw  that  these  bondholders  themselves  got  enough 
voting  power  to  outvote  the  scattered  stockholders, 
though  even  the  bondholders  were  controlled  for 
the  time  being  by  a  Morgan  "voting  trust."  It 
was  only  fair  that  the  stockholders  rather  than  the 
bondholders  should  suffer  in  the  Erie  reorganiza- 
tion, because  the  great  issues  of  Erie  stock  created 
during  the  gambling  days  of  Drew,  Fisk,  and  Gould 
represented  little  or  no  cash  investment,  while  the 


MORGAN  AND  THE  RAILROADS          31 

bonds  had,  for  the  most  part,  been  issued  for  the 
payment  of  actual  property. 

Other  Morgan  reorganizations  now  followed 
apace.  The  Hocking  Valley,  a  system  of  roads  in 
the  Middle  West,  was  placed  on  its  feet;  the  North- 
ern Pacific,  after  its  checkered  career  of  thirty 
years  of  construction,  collapse,  and  manipulation, 
finally  found  permanent  lodgment  in  the  capacious 
arms  of  the  firm  of  Morgan.  The  Baltimore  and 
Ohio,  the  Atchison,  Topeka  and  Santa  Fe,  and 
several  other  large  properties,  although  not  exclu- 
sively reorganized  by  the  Morgans,  came  to  life 
again  partially  as  a  result  of  their  work.  The 
Philadelphia  and  Reading  system,  an  acute  sufferer 
from  the  wild  gambling  spirit  of  the  previous  dec- 
ade, was  also  taken  in  hand  for  the  second  time, 
and  with  a  strong  financial  organization  started 
on  its  career  as  the  dominating  factor  in  the  an- 
thracite coal  combination;  and  other  properties 
not  completely  wrecked  in  the  smash  of  1893, 
among  them  the  Lehigh  Valley  and  the  Central  of 
Georgia,  were  likewise  rejuvenated. 

Pierpont  Morgan  was  by  1898  a  towering  figure 
in  the  railroad  and  banking  world.  He  had  largely 
reorganized  the  railroad  system  of  America.  He 
was  in  complete  voting  control  of  the  great  network 


S2  THE  MASTERS  OF  CAPITAL 

of  lines  radiating  throughout  the  South  Atlantic 
seaboard;  he  entirely  dominated  the  Erie  Railroad ; 
he  was  the  chief  factor  in  the  policy  of  the  Read- 
ing; he  controlled  the  vast  Northern  Pacific;  he 
had  a  powerful  voice  in  the  administration  of  the 
Baltimore  and  Ohio  and  also  an  important  inter- 
est in  the  affairs  of  the  Atchison,  Topeka  and 
Santa  Fe;  he  had  the  entire  capital  stock  of  the 
rejuvenated  Central  of  Georgia  locked  up  in  his 
safe;  he  controlled  the  Hocking  Valley,  the  Chesa- 
peake and  Ohio;  and  he  was  the  real  financial  power 
behind  the  vast  system  of  the  Vanderbilt  lines. 

Credit  must  of  course  be  given  to  other  men  for  a 
substantial  share  in  this  great  work.  Aside  from 
the  Drexels,  Morgan  had  been  fortunate  for  years 
in  securing  the  aid  of  partners  of  no  mean  ability. 
Perhaps  he  trained  them;  perhaps  their  qualities 
developed  as  a  result  of  the  environment  in  which 
he  placed  them.  In  any  event,  in  these  earlier 
years,  several  names  stand  out  prominently.  One 
of  these  is  Egisto  P.  Fabbri,  a  native  of  Italy,  who 
became  Morgan's  partner  in  1876  and  continued 
until  1884.  Other  conspicuous  names  in  these  and 
later  days  were  J.  Hood  Wright,  Charles  H.  God- 
frey, George  S.  Bowdoin,  and  Charles  H.  Coster. 
All  these  men  either  retired  rich  in  middle  life  or 


MORGAN  AND  THE  RAILROADS          33 

N 

died  in  harness.  Coster  was  a  notable  example  of 
a  man  who  worked  himself  to  death.  He  was  a  ' 
great  master  of  detail,  besides  being  a  genius  at 
working  out  plans  of  reorganization.  It  is  asserted 
that  all  the  successful  Morgan  reorganization  plans 
up  to  the  time  of  Coster's  death  were  his  work. 
Perhaps  this  is  true;  at  any  rate  during  these  trying 
years  Coster  was  Morgan's  right  arm.  He  was 
a  familiar  figure  in  Wall  Street  —  a  white-faced, 
nervous  man,  hurrying  from  meeting  to  meeting 
and  at  evening  carrying  home  his  portfolios.  He 
traveled  across  the  country,  studying  railroad  sys- 
tems, watching  roadbeds  from  the  back  platforms 
of  trains,  evidently  never  getting  a  chance  for  rest 
or  leisure.  When  he  died  suddenly  in  the  spring 
of  1900,  the  newspapers  pointed  out  that  he  had 
been  a  director  in  fifty-nine  corporations. 

And  now,  as  the  period  of  railroad  reorganization 
closed  and  a  new  century  was  at  hand,  the  house 
of  Morgan  once  more  found  itself  with  only  one 
commanding  figure  in  its  list  of  American  part- 
ners. Fabbri  was  dead;  J.  Hood  Wright  was  dead; 
Charles  H.  Coster  was  dead;  Walter  Burns,  the  Lon- 
don genius  who  had  handled  affairs  there  since  the 
demise  of  the  elder  Morgan,  was  also  dead  —  all 
having  succumbed  to  the  gigantic,  nerve-racking 


34  THE  MASTERS  OF  CAPITAL 

business  and  pressure  of  the  Morgan  methods  and 
the  strain  involved  in  the  care  of  the  railroad  capi- 
tal of  America.  Both  the  Drexels  were  also  gone. 
"Jupiter"  Morgan  had  alone  come  through  that 
soul-crushing  mill  of  business,  retaining  his  healtbr 
vigor,  and  energy. 


CHAPTER  III 

THE    IRONMASTERS 

* 

ANDREW  CARNEGIE  came  to  America  with  his  fa- 
ther, mother,  and  brother  in  1848,  when  he  was 
thirteen  years  old.  His  parents  were  utterly  pen- 
niless. They  gravitated  to  Allegheny,  where  the 
father  secured  work  in  a  cotton  mill,  and  young 
Andy  became  a  bobbin  boy  at  one  dollar  and 
twenty  cents  a  week.  His  mother  helped  out  by 
taking  in  washing  and  binding  boots  for  a  shoe- 
maker named  Phipps,  who  had  a  small  shop  near 
by.  This  shoemaker  had  a  ten-year-old  son  called 
Harry,  and  there  it  was  that  the  two  small  boys, 
Henry  Phipps  and  Andrew  Carnegie,  laid  the  foun- 
dations of  their  long  friendship. 

Andy  worked  as  bobbin  boy  for  a  year,  then  be- 
came a  stoker,  and  finally,  at  fifteen,  he  secured  a 
job  as  a  telegraph  messenger  boy  at  three  dollars 
a  week.  He  soon  learned  how  to  send  and  receive 

Euessages,  often  practising  with  other  boys  before 

35 


36  THE  MASTERS  OF  CAPITAL 

the  operator  arrived  in  the  morning.  He  had  not 
been  a  messenger  boy  long  before  he  displayed 
the  striking  quality  which  so  characterized  him  in 
after  life  —  audacity.  The  boys  were  forbidden  to 
touch  the  instruments,  but  it  one  day  happened 
that  an  important  message  came  over  the  wires 
when  the  operator  was  out.  Andy  jumped  to  the 
instrument  and  took  the  message.  For  this  break- 
ing of  orders  he  was  not  only  forgiven  but  was 
promoted  to  be  an  operator  at  a  salary  of  six  dollars 
a  week.  A  few  years  later,  his  industrious  efforts 
and  efficient  work  came  under  the  notice  of  Colonel 
Thomas  A.  Scott,  who  was  general  superintendent 
of  the  Pennsylvania  Railroad  in  Pittsburgh,  and 
young  Carnegie  soon  became  a  railroad  telegraph 
operator  at  a  further  increase  in  salary.  He  was 
now  nineteen  years  old,  and  his  audacity  and 
initiative  began  to  develop  rapidly.  One  day, 
during  the  absence  of  Colonel  Scott,  an  accident 
occurred  on  the  lines,  which  tied  up  the  traffic. 
Immediately  Carnegie  wrote  a  dozen  telegrams, 
containing  orders  for  setting  the  trains  in  motion 
and  signed  them  all  "Thomas  A.  Scott."  This 
saved  the  day,  and  Scott,  who  recognized  the  great 
qualities  in  the  lad,  made  him  his  private  secretary. 
From  the  beginning  of  Colonel  Scott's  friendship, 


THE  IRONMASTERS  37 

Carnegie's  future  was  assured.  In  his  new  environ- 
ment, he  gained  a  wider  outlook  on  life,  and  es- 
pecially on  business  life,  for  Scott  was  an  influential 
man  in  Pittsburgh  and  had  his  fingers  in  all  sorts 
of  business  and  speculative  pies.  Carnegie's  first 
money  was  made  in  an  oil  speculation,  without  the 
investment  of  a  cent  of  his  own.  He  gave  his  note 
for  a  block  of  stock  in  one  of  the  smaller  Pennsyl- 
vania oil  companies  and  then  paid  the  note  out 
of  dividends  received  on  the  stock  within  a  single 
year.  This  gave  him  a  little  capital  and,  under  the 
guidance  of  Scott,  he  began  to  buy,  with  his  small 
funds  and  with  borrowed  capital,  shares  here  and 
there  in  many  enterprises.  Most  of  these  enter- 
prises were  things  in  which  Scott  was  an  "insider" 
and  thus  Carnegie  was  able  to  make  safe  specula- 
tions on  "sure  enough"  information.  In  a  little 
while,  he  was  the  owner  of  shares  in  such  companies 
is  the  Columbia  Oil  Company,  the  Woodruff  Sleep- 
ing Car  Company,  the  Pittsburgh  Elevator  Com- 
pany, the  Citizens'  Passenger  Railroad  Company, 
and  the  Third  National  Bank  of  Pittsburgh. 

For  ten  years  Carnegie  continued  at  his  work 
as  Scott's  secretary  and  steadily  added  to  his 
investments  and  his  capital.  In  1864,  when  he 
was  twenty-eight,  he  succeeded  Colonel  Scott  as 


38  THE  MASTERS  OF  CAPITAL 

superintendent  of  the  railroad.  But  young  Car- 
negie never  planned  to  remain  a  mere  employee  of 
a  railroad  or  any  other  corporation.  He  meant,  as 
soon  as  his  funds  were  sufficiently  large,  to  have  a 
business  of  his  own.  His  eyes  and  ears  were  always 
open,  and  he  watched  his  chances,  profiting  by  the 
inside  information  he  obtained  as  Scott's  secretary. 
At  first  he  had  thought  seriously  of  entering  the  oil 
business  on  his  own  account;  but  evidently  no  real 
opportunity  presented  itself  and  he  resolved  to 
bide  his  time. 

While  the  Civil  War  was  drawing  to  a  close,  the 
country  about  Pittsburgh  was  being  agitated  not 
only  by  the  petroleum  boom,  but  by  another  type 
of  industry,  which,  like  the  oil  business,  was  also 
to  leave  its  stamp  on  the  economic  life  of  America. 
This  was  the  manufacture  of  malleable  steel  by 
the  newly  developed  Bessemer  process.  Up  to  this 
time  not  a  yard  of  railroad  track  in  the  United 
States  had  been  laid  with  steel.  American  rail- 
roads were  then  iron  roads.  There  were  frequent 
references  in  those  days  to  the  "iron  horse,"  and 
''iron  roads."  But  iron  was  really  too  poor  a 
metal  for  railroad  rails,  and  men  were  constantly 
looking  for  something  harder  and  more  durable. 
Steel  had  been  made  for  many  years  in  small 


THE  IRONMASTERS  39 

quantities,  but  the  cost  was  far  too  great  to  bring 
it  into  general  use.  Moreover,  the  demand,  even 
for  iron,  had  not  developed  far  enough  to  attract 
capital  in  any  great  amount.  Iron  was  produced 
in  small  furnaces  and  in  small  quantities,  and  no 
one  dreamed  that  it  would  ever  become  anything 
more  than  the  precarious,  poverty-stricken,  uncer- 
tain industry  that  it  had  always  been.  The  best 
furnaces  in  those  days  did  not  produce  a  thou- 
sand tons  of  iron  a  year;  and,  because  of  the  fluctua- 
tions in  demand,  most  iron  makers  were  without 
capital  and  constantly  in  debt.  The  panics  of 
1837  and  1857  had  caused  the  failure  of  scores  of 
iron  founders.  Nobody  with  capital  wanted  to 
put  money  into  so  precarious  a  business. 

But,  as  railroad  building  expanded,  the  demand 
for  more  durable  iron  began  to  increase  steadily. 
Steel  was  recognized  as  the  ideal  substance  for 
rails,  but  the  cost  of  making  it  was  prohibitive. 
If  some  genius  would  only  devise  a  method  for 
making  cheap  steel,  he  would  be  one  of  the  bene- 
factors of  the  century.  And  it  usually  happens, 
when  the  demand  for  a  given  thing  is  insistent 
enough,  that  the  needed  genius  does  arise.  In  1847, 
a  young  man  of  thirty-six,  William  Kelly,  bought 
the  Suwanee  Iron  Works  near  Eddy ville,  Kentucky. 


40  THE  MASTERS  OF  CAPITAL 

Kelly  was  an  inventive  character,  but  a  poor  busi- 
ness man.  He  desired  to  specialize  on  good,  high 
class  wrought  iron  for  sugar  kettles.  To  do  this  he 
invented  a  new  method  for  making  larger  kettles, 
which  soon  became  famous  as  "Kelly's  Kettles." 
But  the  process  was  the  old  slow  one  of  using  char- 
coal in  large  quantities  —  a  process  which  involved 
much  time  and  enormous  quantities  of  charcoal. 

Almost  by  accident  Kelly  discovered  that  there 
was  no  need  of  charcoal;  that  air,  too,  was  fuel. 
Every  iron  worker  from  time  immemorial  had  be- 
lieved that  cold  air  would  chill  hot  iron.  But  Kelly 
was  something  of  a  student  of  metallurgy  and  he 
knew  that  carbon  and  oxygen  had  an  affinity  for 
each  other.  Therefore  when  one  day  he  saw  his 
yellow  mass  of  molten  metal  turn  to  a  white 
heat  without  charcoal,  and  simply  because  of  the 
air  which  happened  to  strike  it,  the  truth  flashed 
across  his  mind  in  an  instant.  Of  course,  it  was  as 
simple  as  breathing.  When  the  air  was  blown  into 
the  molten  metal,  the  oxygen  united  with  the  im- 
purities of  the  iron  and  left  the  pure  iron  behind. 
Kelly  was  carried  away  with  his  discovery  and  im- 
mediately proclaimed  it  to  an  incredulous  public. 
Instead  of  being  rewarded,  he  was  ridiculed.  He 
found  it  impossible  to  convince  any  one  that  he 


THE  IRONMASTERS  41 

was  sane,  and  his  business  was  finally  ruined  be- 
cause buyers  of  iron  refused  to  take  his  goods  unless 
they  "were  made  in  the  regular  way. "  But  Kelly 
persisted  in  his  work,  and  within  a  few  years  he  was 
actually  producing  malleable  iron  in  substantial 
quantities. 

But  it  took  more  than  Kelly's  discovery  to  bring 
steel  into  use  on  any  large  scale.  The  process  he 
had  worked  out  had  to  be  put  into  general  use 
and  accepted  abroad  before  American  users  of  steel 
would  have  much  to  do  with  American-made  steel. 
Hitherto  practically  all  the  steel  used  in  America 
had  been  imported  from  England,  and  the  tradition 
held  that  steel  was  essentially  an  English  product 
and  not  a  domestic  article.  Hence  most  people 
looked  upon  American-made  steel  as  bogus  and  re- 
garded the  imported  as  the  only  real  article.  While 
Kelly  was  experimenting,  an  Englishman,  by  the 
name  of  Henry  Bessemer,  was  also  following  out 
the  same  idea.  And  soon,  "Bessemer"  steel  be- 
gan to  appear  in  small  quantities  in  the  United 
States.  It  was  the  same  thing  that  Kelly  had  been 
making  since  1847  by  the  same  process;  but  where- 
as buyers  at  once  accepted  the  imported  "Besse- 
mer steel,"  they  still  remained  prejudiced  against 
Kelly's  "fool-steel." 


42  THE  MASTERS  OF  CAPITAL 

After  this,  Kelly's  career  was  a  checkered  one, 
It  was  not  until  many  years  afterwards  that  he 
was  really  recognized  as  the  discoverer  of  the  proc- 
ess in  the  United  States.  He  finally  secured  a 
patent  but  lost  it  through  bad  business  manage- 
ment, and  it  was  long  after  the  close  of  the  Civil 
War  before  he  got  any  financial  benefits  for  his 
work.  Ultimately,  however,  he  was  given  full 
credit  by  the  world  at  large  for  his  services  to 
the  industry,  and  he  is  now  universally  recognized 
as  having  discovered  and  perfected  the  Bessemer 
process  well  in  advance  of  Sir  Henry  Bessemer; 
although  the  Englishman  brought  his  work  to 
fruition  far  more  rapidly. 

During  the  latter  days  of  the  Civil  War,  with 
big  plans  pending  for  the  construction  of  the  Pacific 
railroads,  the  demand  for  railroad  iron  was  taxing 
all  the  plants  in  the  country.  And,  as  the  cost  of 
production  was  falling  to  a  point  where  it  was 
commercially  possible  for  steel  to  be  used,  capital 
in  substantial  quantities  was  seeking  investment 
in  this  new  industry.  It  seemed  at  last  as  if  the 
iron  industry  might  develop  into  a  big  money-mak- 
ing enterprise  after  all.  And  so  thought  Andrew 
Carnegie,  for  in  May,  1864,  we  find  him  buy- 
ing from  Thomas  N.  Miller  for  $8920  a  one-sixth 


THE  IRONMASTERS  43 

interest  in  the  Iron  City  Forge  Company.  The 
other  stockholders  at  that  time  were  Carnegie's 
boyhood  friend,  Henry  Phipps,  and  Andrew  Klo- 
man.  At  about  the  same  time  Carnegie  formed 
the  Keystone  Bridge  Company,  inducing  J.  Edgar 
Thomson,  Colonel  Scott,  and  other  railroad  officials 
to  join  him  in  financing  the  enterprise.  It  proved 
immediately  successful,  and  in  four  years  Carnegie 
had  paid  for  his  own  stock  out  of  the  profits.  The 
backing  of  the  Pennsylvania  Railroad,  which  Car- 
negie had  shrewdly  procured,  was  a  gold  mine  to 
him.  This  road  was  building  steel  bridges  by  the 
score  at  this  time,  and  of  course  the  Keystone  Bridge 
Company  got  all  the  business  it  could  handle. 

After  the  Civil  War,  when  prices  fell,  Carnegie's 
steel  business  suffered  reverses,  but  the  bad  times 
were  tided  over.  When  business  revived,  Carnegie 
emerged  in  complete  control  of  the  enterprise, 
having  bought  out  Kloman  and  Miller,  and  the 
company  never  experienced  real  trouble  again. 
Andrew  Carnegie  made  money  with  great  rapidity 
and  long  before  the  panic  of  1873  he  was  a  million- 
aire several  times  over  and  one  of  the  big  ironmas- 
ters of  America. 

It  has  often  been  asserted  that  Andrew  Carnegie 
was  the  first  American  ironmaster  to  make  steel 


44  THE  MASTERS  OF  CAPITAL 

by  the  Bessemer  process.  But  this  is  not  true.  Car- 
negie was  not  a  pioneer  in  this  industry  any  more 
than  John  D.  Rockefeller  was  in  the  oil  business. 
Like  Rockefeller,  he  took  no  real  interest  in  a  new 
idea  until  its  practicality  and  future  success  had 
been  well  demonstrated  by  others.  When  Carnegie 
went  into  the  iron  business  in  1864,  he  was  still 
wedded  to  the  idea  that  wrought  iron,  made  by  the 
old  process,  was  to  be  the  standard  railroad  metal 
of  the  future.  But  by  1866,  many  manufacturers 
were  turning  to  the  Bessemer  process  with  evi- 
dent success.  At  this  time,  William  Coleman,  one 
of  his  partners,  suggested  that  they  begin  making 
steel  by  the  Bessemer  process.  The  other  partners 
agreed,  but  Carnegie  strenuously  objected.  Indeed, 
Carnegie  was  not  a  steel  or  iron  expert  in  the  real 
sense.  He  was  a  financier,  a  capitalist,  a  business 
booster.  As  his  business  developed,  he  spent  less 
and  less  time  in  the  management  of  the  concern, 
and  gave  his  best  attention  to  popularizing  the 
Carnegie  products  among  buyers  throughout  the 
country.  He  promptly  removed  to  New  York  and 
began  to  make  the  acquaintance  of  all  kinds  of 
people  with  a  view  to  gathering  prestige  for  him- 
self and  his  business.  He  traveled  widely  and 
began  to  make  many  trips  to  Europe.  In  England 


THE  IRONMASTERS  45 

he  soon  heard  of  Bessemer  steel  and  realized  that 
perhaps  after  all  the  new  process  was  a  sound  one 
that  should  be  adopted.  Investigation  thoroughly 
converted  him  to  the  idea.  He  rushed  back  to 
Pittsburgh  and  to  the  astonishment  of  his  partners 
talked  nothing  but  steel,  steel,  steel.  Immediately 
the  firm  of  Carnegie,  McCandless  and  Company 
was  formed  with  a  capital  of  seven  hundred  thou- 
sand dollars.  Carnegie  subscribed  the  bulk  of  the 
amount  needed  and  steps  were  at  once  taken  for 
the  construction  of  a  large  plant. 

The  new  plant  was  situated  a  few  miles  from 
Pittsburgh  and  was  named  the  Edgar  Thomson 
Works,  after  the  president  of  the  Pennsylvania 
Railroad.  This  was  another  shrewd,  calculating 
move  on  the  part  of  Carnegie,  who  wished  to  get  all 
the  orders  and  advantages  that  could  be  obtained 
from  this  big  consumer  of  steel  rails.  Moreover 
these  were  days  of  little  or  no  railroad  regulation, 
and  railroad  rebating  was  customary  in  both  the 
oil  and  steel  business.  In  fact,  any  large  shippers 
could  usually  obtain  rebates  from  the  railroads  to 
the  disadvantage  of  the  little  shippers.  In  this 
way,  also,  Carnegie  felt  that  a  close  relationship 
with  the  officials  of  the  Pennsylvania  Railroad 
would  be  an  asset  of  value. 


46  THE  MASTERS  OF  CAPITAL 

About  the  time  that  Carnegie  was  getting  his 
money  ready  to  buy  out  the  Iron  City  Forge  Com- 
pany, in  1864  a  fourteen -year-old  lad  named  Henry 
Clay  Frick  was  working  as  errand  boy  in  a  village 
store  at  Mount  Pleasant,  about  forty  miles  from 
Pittsburgh.  He  was  the  son  of  poor  parents,  whose 
ancestors  had  emigrated  from  Switzerland  more 
than  a  century  before,  a  quiet,  thoughtful  lad,  self- 
contained  and  reticent.  In  those  days  a  new  in- 
dustry was  developing  at  Mount  Pleasant,  known 
as  coke  making.  Coal  was  mined  and  baked  in 
brick  ovens  until  it  turned  into  crisp  gray  lumps. 
These  lumps  were  very  valuable  to  iron  makers, 
who  used  them  in  smelting  the  iron  ore.  It  is 
not  probable  that  young  Frick  fully  realized 
what  developments  were  ahead  in  the  iron  and 
steel  business  of  the  country  or  that  he  foresaw  the 
age  of  steel  in  which  coke  making  would  become  a 
giant  industry.  But  the  boy  saw  in  coke  making 
a  lucrative  opportunity  and  began  to  save  his 
money  with  the  hope  that  in  time  he  would  have 
capital  enough  to  buy  a  small  strip  of  coal  land 
and  go  into  the  business  himself.  In  four  or  five 
years  he  had  saved  enough  to  buy  a  little  coal  land, 
and  he  then  induced  his  grandfather  and  uncle  to 
buy  some  ovens  which  were  offered  for  sale  at  a 


THE  IRONMASTERS  47 

low  price.  But  shortly  afterwards  the  panic  of 
1873  set  in,  and  the  little  enterprise  was  balked. 
Frick  had  to  continue  working  on  a  small  salary 
and  became  bookkeeper  for  his  grandfather,  who 
was  in  the  distillery  business. 

Young  Frick  had  that  audacity  which  is  charac- 
teristic of  successful  men,  and  particularly  of  men 
who  have  made  and  developed  great  enterprises 
in  America.  Carnegie  displayed  this  trait  at  the 
outset  of  his  career,  when  he  disobeyed  orders 
to  save  a  railroad  wreck;  Rockefeller  displayed  it 
when  he  plunged  into  the  oil  business  with  his  little 
savings  of  seven  hundred  dollars ;  Pierpont  Morgan 
displayed  it  in  early  life  and  it  was  his  chief  char- 
acteristic all  through  his  long,  active  career.  One 
day,  after  the  smoke  of  the  1873  panic  had  dis- 
appeared and  business  was  reviving,  a  Pittsburgh 
banker  named  Mellon  received  by  mail  a  request 
for  a  loan  of  twenty  thousand  dollars  from  an  un- 
known person  by  the  name  of  H.  C.  Frick.  No 
security  was  offered  but  big  profits  were  promised 
if  the  money  was  advanced  at  once.  The  banker 
liked  the  tone  of  the  letter  and  sent  his  partner 
to  Mount  Pleasant  to  investigate.  Naturally  he 
expected  to  meet  a  man  of  wealth  and  property 
and  was  surorised  to  find  that  "H.  C.  Frick"  was 


48  THE  MASTERS  OF  CAPITAL 

merely  a  youth  who  was  working  for  a  few  dollars 
a  week  and  living  in  one  room  of  a  coal  miner's 
house.  But  the  banker  had  himself  worked  up 
from  poverty;  he  liked  the  honest,  bright  face  of 
the  youth  and  was  impressed  with  his  sincerity 
and  intelligence.  Careful  investigation  confirmed 
his  first  impression,  and  the  final  result  was  that 
the  twenty  thousand  dollars  was  advanced  to  the 
young  operator. 

Within  a  short  time  Frick  became  the  foremost 
coke  maker  in  the  neighborhood.  The  price  of 
coke  kept  rising  in  response  to  the  great  demand 
from  the  steel  makers,  and  in  one  year  Frick  and 
his  associates  made  a  profit  of  one  hundred  per 
cent  on  their  capital.  All  the  profits  went  back 
into  the  business  for  the  purchase  of  more  coal 
lands  and  the  building  of  more  ovens.  In  a  little 
while  Frick  was  the  coke  king  of  Connellsville  and 
was  piling  his  profits  up  into  the  millions.  He  was 
more  than  a  mere  coke  maker,  however;  he  was 
an  organizer  of  the  highest  type.  He  brought  order 
out  of  chaos  in  the  coke  business;  he  induced 
his  leading  competitors  to  combine  with  him,  thus 
eliminating  cutthroat  competition;  he  also  settled 
troublesome  labor  problems  by  importing  Hunga- 
rians and  Slavs.  His  labor  wars  were  not  so  much 


THE  IRONMASTERS  49 

questions  of  wages  as  of  law  and  order.  On  the 
whole  he  raised  wages  and  improved  the  villages 
and  mines  in  his  region;  but  he  was  determined  to 
be  the  master  of  his  own  business. 

When  in  1882  the  tendency  toward  consolidation 
of  interests  had  begun,  it  was  natural  enough  that 
the  coke  making  and  the  steel  manufacturing  busi- 
nesses should  be  drawn  together.  Both  Frick  and 
Carnegie  recognized  the  logic  of  the  idea.  Con- 
sequently in  this  year  Carnegie  and  his  associates 
bought  control  of  the  H.  C.  Frick  Coal  and  Coke 
Company.  This  change  of  ownership  brought 
Henry  C.  Frick  into  the  steel  business.  He  ac- 
quired a  substantial  interest  in  the  Carnegie  Works 
and  an  influence  which  became  more  evident  from 
year  to  year.  His  intelligence  and  masterful  quali- 
ties were  exactly  what  the  Carnegie  organization 
needed.  A  new  chapter  now  opened  in  the  affairs 
of  the  company.  Having  acquired  control  of  one 
raw  material  by  purchasing  the  coke  business,  the 
company  was  now  to  make  a  further  advance  and 
acquire  ore  beds.  And,  as  the  only  ore  deposits  of 
value  were  far  from  Pittsburgh  in  the  Lake  Supe- 
rior region,  it  became  necessary  for  the  company 
to  go  into  the  transportation  business  also,  to 
establish  steamship  lines  on  the  Great  Lakes 


50  THE  MASTERS  OF  CAPITAL 

and  to  build  railroads  from  the  water  to  its  works 
at  Pittsburgh. 

The  Mesaba  ore  fields,  acquired  by  the  Carnegie 
associates,  had  been  first  opened  up  by  Louis 
Merritt,  who  had  sold  his  holdings  to  John  D. 
Rockefeller  some  years  before.  Rockefeller,  know- 
ing little  at  that  time  outside  of  the  petroleum  field, 
afterwards  thought  he  had  made  a  bad  investment. 
But  this  was  not  the  impression  in  Pittsburgh, 
where  the  possibilities  of  wealth  in  the  mining  of 
Lake  Superior  ore  had  now  been  fully  recognized. 
A  man  named  Harry  Oliver,  who  had  been  in  the 
steel  business  and  had  been  a  friend  of  Carnegie 
in  his  early  days,  realized  the  possibilities  of  the 
Mesaba  Range  and  bought  a  large  tract  of  land 
there  for  a  small  sum  of  money.  Soon  afterward 
Frick  met  Oliver  on  the  street  and  suggested  that 
the  Carnegie  company  go  into  the  Mesaba  ore 
business  with  him.  The  terms  suggested  by  Frick 
were  that  Oliver  should  surrender  five-sixths  of  his 
stock,  in  return  for  which  the  Carnegie  company 
would  advance  half  a  million  dollars  for  the  de- 
velopment of  the  mines.  The  bargain  was  made, 
and  thus  the  Carnegie  company  acquired  a  prop- 
erty which  in  a  few  years  was  worth  tens  of  millions 
of  dollars.  But  this  was  only  one  step  in  the 


THE  IRONMASTERS  51 

control  of  the  ore  supply.  A  few  years  later,  Frick 
and  Oliver  joined  forces  with  John  D.  Rockefeller 
in  the  Lake  Superior  ore  business.  This  powerful 
alliance  caused  a  great  fall  in  the  price  of  iron  ore 
and  forced  many  smaller  producers  to  the  wall. 
Their  holdings  were  thereupon  bought  in  by  the 
Frick  and  Rockefeller  combination. 

Thus  from  small  beginnings  the  steel  business 
had  grown  into  a  gigantic  industry.  Meanwhile 
railroads  had  spread  over  the  continent  and  the 
petroleum  business  had  become  a  monopoly  under 
the  control  of  the  Rockefellers.  The  time  was 
at  hand  when  the  big  bankers  of  Wall  Street,  al- 
ready busy  in  the  railroad  field,  would  take  part 
also  in  petroleum,  steel,  and  a  multitude  of  other 
industrial  enterprises  and  utilities  which  had  so 
grown  in  size  and  value  that  they  could  no  longer 
remain  independent  of  vast  banking  interests. 


CHAPTER  IV 

STANDARD    OIL  AND   WALL    STREET 

IN  1859,  ten  years  after  the  discovery  of  gold  in 
California,  another  epoch-making  discovery  was 
made,  this  time  in  Pennsylvania.  An  enterprising 
prospector  in  Venango  County  drilled  a  well  and 
produced  a  flow  of  petroleum,  which  was  already 
known  to  have  great  commercial  value.  It  was 
almost  like  finding  liquid  gold,  for  the  stuff  brought 
twenty  dollars  a  barrel  and  it  flowed  at  the  rate 
of  twenty-five  barrels  a  day.  In  a  few  months' 
time  the  narrow  valley  in  northwestern  Pennsyl- 
vania where  the  discovery  was  made  swarmed  with 
madmen  tearing  open  the  ground  in  the  frenzy  of 
competition  that  characterizes  all  new  mining  dis- 
tricts. So  far  as  was  known,  the  petroleum  might 
soon  dry  up  and  every  one  was  hurrying  to  "strike 
oil "  before  it  should  be  gone. 

About  this  time  a  young  commission  merchant 
in  Cleveland,  Ohio,  named  John  D.  Rockefeller, 

52 


STANDARD  OIL  AND  WALL  STREET      53 

had  saved  up  about  seven  hundred  dollars,  nursing 
it  from  nothing,  a  few  dollars  at  a  time.  In  1860 
he  took  a  chance  with  three  other  men  in  the  ven- 
ture of  mining  petroleum,  putting  in  a  portion  of 
his  seven  hundred  dollars.  Within  two  years  the 
three  men  had  run  their  investment  up  to  about 
four  thousand  dollars.  They  made  a  good  burning 
oil,  and  their  profits,  like  those  of  all  refiners  at 
the  time,  were  amazingly  large.  During  the  next 
few  years,  tens  of  thousands  of  dollars  were  made 
annually  by  this  concern.  But  instead  of  drawing 
these  profits  out,  Rockefeller,  who  dominated  the 
combination  from  the  start,  insisted  that  every 
cent  possible  be  reinvested  in  the  business.  "Take 
out  what  you've  got  to  have  to  live  on,  but  leave 
the  rest  in, "  he  kept  urging  his  partners.  "Don't 
buy  new  clothes  and  fast  horses;  let  your  wife  wear 
her  last  year's  bonnet.  You  can't  find  any  place 
where  money  will  earn  what  it  does  here. " 

And  this  was  true.  But  this  new  business  had 
peculiar  risks.  In  the  first  place,  the  operators  had 
no  experience  to  guide  them.  Indeed,  no  one  knew 
when  this  petroleum  would  give  out;  many  feared 
that  it  would  be  exhausted  in  a  few  years  and  that 
they  would  be  left  with  useless  plants  on  their 
hands.  In  the  second  place,  it  faced  the  reckless 


54  THE  MASTERS  OF  CAPITAL 

competition  of  all  enterprises  promising  fabulous 
profits.  Rockefeller  was  farseeing  enough  to  re- 
alize these  dangers  and  shrewd  enough  to  prepare 
for  them.  Thus  he  early  advocated  the  theory 
that  the  oil  business  could  only  be  made  secure  if 
bolstered  up  at  all  times  by  large  cash  reserves. 
He  saw  that,  should  more  petroleum  be  discovered 
and  the  business  continue  on  a  large  scale,  only 
those  concerns  which  had  the  immediate  cash 
resources  could  hope  ultimately  to  dominate  the 
field.  The  producers  and  refiners  who  dissipated 
or  spent  their  profits  as  they  made  them  would 
have  to  succumb  in  the  end  to  the  stronger 
financial  interests  in  the  same  field  of  activity. 

Hence,  during  the  period  when  the  business  was 
getting  well  established,  the  decade  from  1860  to 
1870,  John  D.  Rockefeller  and  his  friends  year  by 
year  added  steadily  and  quietly  to  their  cash, 
until  by  1867  they  were  in  no  sense  dependent 
on  bankers  or  financiers,  as  were  the  railroads  and 
other  large  industries  of  the  country.  They  were 
their  own  bankers  from  the  start  and  were  in  a 
position  even  in  those  early  days  to  snap  their 
fingers  at  Wall  Street  and  Lombard  Street.  When 
the  Standard  Oil  Company  of  Ohio  was  formed  in 
1870  with  one  million  dollars  cash  capital,  it  was 


STANDARD  OIL  AND  WALL  STREET      55 

undoubtedly  the  one  great  business  corporation 
of  America  which  had  no  debts  and  no  direct 
banking  alliances  or  affiliations. 

There  was,  of  course,  a  reason  for  this  complete 
absence  of  banking  or  investing  interest,  aside  from 
the  announced  policy  of  the  Rockefeller  group. 
From  the  beginning,  such  banking  houses  as  the 
Morgans,  the  Drexels,  and  the  foreign  houses 
with  American  connections,  had  kept  away  from 
this  new  business,  just  as,  until  the  twentieth  cen- 
tury, conservative  capital  in  Wall  Street  to  a  large 
extent  kept  away  from  precarious  industries  like 
copper  mining,  electrical  enterprises,  and  so  forth. 
The  industry  had  not  proved  its  permanence  or  sta- 
bility and  was  therefore  classed  as  a  "  speculation  " 
rather  than  a  sure  investment. 

Rockefeller  was  farseeing  enough  to  divine  this 
attitude  and  to  take  advantage  of  it  by  so  form- 
ing his  policy  that,  if  the  industry  should  demon- 
strate its  permanent  strength  and  earning  power, 
he  and  his  associates  would  reap  all  advantages 
and  would  never  have  to  divide  profits  with  bank- 
ing interests  or  capitalists,  in  order  to  procure  funds 
to  carry  the  business  through  lean  or  unprofitable 
periods,  as  the  railroad  corporations  had  been 
forced  to  do.  Not  long  after  1870  the  wisdom  of 


56  THE  MASTERS  OF  CAPITAL 

this  policy  was  demonstrated.  Hard  times  came, 
and  refiners  in  all  parts  of  the  country  went  to  the 
wall  for  want  of  cash.  Bankers  would  not  help 
them  because  of  the  newness  and  precarious  na- 
ture of  the  business.  Then  the  Standard  Oil  Com- 
pany began  to  buy  the  weaker  refineries  at  bargain 
prices  and  to  establish  a  chain  of  plants  across  the 
country.  This  enabled  it  to  organize  production 
on  a  large  scale  and  to  reduce  the  cost  of  re- 
fining and  distributing  oil  to  a  fraction  of  what 
it  cost  most  of  its  competitors.  The  company 
then  bought  the  pipes  which  connected  the  wells 
in  all  parts  of  the  country  and  laid  miles  and  miles 
of  pipe  lines  of  its  own.  This  forced  the  railroads 
to  come  to  terms,  as  they  had  been  large  shippers 
of  oil;  and  they  were  obliged  to  accede  to  a  policy 
of  secret  rebating  in  the  interest  of  Standard  Oil 
and  at  the  expense  of  the  independent  refiners. 
Ultimately,  nearly  all  the  competition  in  the  oil 
trade  was  eliminated  by  these  methods,  until,  in 
1879,  the  Standard  Oil  interests  were  the  only 
bona-fide  buyers,  the  only  gatherers,  and  the  only 
refiners  of  all  but  ten  per  cent  of  the  petroleum 
of  the  country.  One  by  one,  all  the  plants  in  the 
business  without  sufficient  cash  capital  had  fallen 
into  the  hands  of  the  one  firm  supplied  with  cash. 


STANDARD  OIL  AND  WALL  STREET      57 

During  the  decade  in  which  this  expansion  of 
the  Standard  Oil  Company  took  place,  the  policy 
was  never  abandoned  of  accumulating  and  retain- 
ing large  cash  resources.  By  1875  the  cash  re- 
sources had  risen  from  about  one  million  in  1870  to 
over  thirteen  millions ;  half  a  dozen  years  later  they 
reached  forty-five  millions ;  and  during  that  decade 
the  company  and  its  subsidiaries  had  not  only 
bought  up  most  of  their  competitors  with  ready 
cash  but  in  addition  had  paid  out  in  dividends 
over  eleven  million  dollars. 

Up  to  this  period,  most  men  had  not  foreseen 
the  possibilities  of  the  petroleum  industry.  Least 
of  all  had  they  thought  of  its  bringing  about  a 
concentration  of  capital.  The  great  bankers  who 
were  coming  to  the  front,  such  as  Jay  Cooke  and 
Company,  Drexel,  Morgan  and  Company,  and 
the  Jewish  representatives  of  German  and  Dutch 
capital  in  the  United  States  were  concentrating 
their  attention  almost  exclusively  on  the  develop- 
ment of  steam  railroads.  The  achievements  of  the 
Cookes  and  of  the  Morgans  and  their  colleagues 
were  the  financing  of  governments  and  of  railroads. 
This  fact  remained  true  long  after  the  Standard 
Oil  Trust  had  taken  its  place  as  the  most  powerful 
"master  of  capital"  on  the  continent.  Thus  while 


08  THE  MASTERS  OF  CAPITAL 

the  banking  interests  of  America,  as  represented 
by  the  Morgan  type,  were  rising,  there  was  also 
growing  a  new  banking  power  which  for  a  long  time 
they  persistently  ignored.  Adherence  to  the  Rocke- 
feller policy  meant  that  the  Standard  Oil  capital- 
ists must  organize  in  such  a  manner  as  to  perform 
banking  functions;  so  the  Standard  Oil  Company 
of  Ohio  was  from  its  very  inception  its  own  banker. 
As  this  industry  spread  and  subsidiaries  were 
formed  in  various  States,  it  became  necessary  to 
have  the  vast  financial  operations  handled  from 
one  central  head.  The  New  York  office  was  then 
organized  and  became  the  financial  center  of  the 
business.  The  numerous  subsidiary  companies  all 
became  responsible  to  the  New  York  office,  and  all 
the  cash  and  surplus  funds  gravitated  to  that  point. 
With  the  year  1882  begins  the  period  when  the 
Standard  Oil  capitalists  began  to  make  their  in- 
fluence more  directly  felt  in  Wall  Street.  In  that 
year  was  formed  the  famous  Standard  Oil  Trust 
and  "26  Broadway"  became  the  official  financial 
and  business  center  of  the  petroleum  industry  of 
the  country.  In  a  little  while,  the  Standard  Oil 
Trust  was  really  a  bank  of  the  most  gigantic  char- 
acter —  a  bank  within  an  industry,  financing  this 
industry  against  all  competition  and  continually 


STANDARD  OIL  AND  WALL  STREET      59 

lending  vast  sums  of  money  to  needy  borrowers 
on  high  class  collateral,  just  as  the  other  great 
banks  were  doing. 

Standard  Oil  was  swelling  with  cash  assets, 
and  the  small  group  of  men  who  controlled  its 
destinies  had  become  multimillionaires.  Of  the 
dividends  of  over  eleven  million  dollars  distributed 
between  1870  and  1882,  John  D.  Rockefeller 
had  received  the  bulk,  but  Oliver  H.  Payne, 
Henry  M.  Flagler,  William  Rockefeller,  and  a  few 
others  received  a  substantial  remainder.  Natu- 
rally these  new  millionaires  sought  investment  for 
their  fabulous  incomes,  aside  from  such  portions 
of  them  as  they  were  able  to  reinvest  in  the  oil  in- 
dustry. They  were  soon  impelled  to  turn  to  other 
fields  of  enterprise,  not  only  to  employ  their  own 
funds  profitably  but  to  find  investment  for  the 
steadily  swelling  surpluses  and  cash  assets  of  the 
Standard  Oil  Company  itself. 

Far  back  in  the  period  prior  to  the  Civil  War 
the  great  West  India  trading  house  of  G.  G.  and 
S.  Rowland  was  doing  business  at  the  foot  of  Wall 
Street.  The  last  and  possibly  the  greatest  of  the 
old  school  of  New  York'  merchants  —  Moses  Tay- 
lor—  served  his  apprenticeship  there.  He  had 


60  THE  MASTERS  OF  CAPITAL 

been  brought  up  in  the  strictest  traditions  of  the 
old-style  merchants,  for  his  father  had  been  con- 
fidential agent  for  the  old  fur  trader,  John  Jacob 
Astor.  In  1832,  when  Taylor  was  twenty-six  years 
old,  he  started  in  the  West  India  business  for  him- 
self and  became  the  chief  figure  in  the  great  raw 
sugar  trade.  In  1855  he  became  president  of  the 
old  City  Bank  —  the  bank  of  the  merchants  of 
raw  materials. 

The  rich  Cuban  planters  deposited  their  money 
with  him  and  left  in  his  care  the  reams  of  United 
States  government  bonds  into  which  they  had 
put  their  savings.  The  bank  had  also  a  strong 
cotton  clientele,  and  it  handled  the  business  of  such 
houses  as  the  great  importing  metal  firm  of  Phelps, 
Dodge  and  Company.  It  was  even  then  what  a 
strong  bank  should  be  —  a  federation  of  interests 
still  stronger  and  greater  than  itself.1 

1  In  those  days,  the  different  classes  of  merchants  had  their  particu- 
lar banks,  as  indeed  they  have  today  to  some  extent.  To  the  north 
of  Wall  Street,  towards  the  East  River,  where  the  tanyards  lay  in  the 
"swamp,"  were  the  banks  of  the  leather  merchants.  The  banks  of 
the  dry -goods  trade  —  such  as  the  Park  and  the  Chemical  —  kept 
near  these  merchants  as  they  edged  up  Broadway.  The  leading  bank 
of  the  raw  materials'  merchants  —  the  City  Bank  —  stayed  where  it 
was  first  founded  in  1812,  in  the  old  center,  the  ancient  banking 
row  on  the  north  side  of  Wall  Street!  It  did  not  grow  so  fast  as  the 
banks  of  the  dry-goods  merchants,  but  it  was  destined  in  the  end  to 
outstrip  all. 


STANDARD  OIL  AND  WALL  STREET      61 

Moses  Taylor  had  his  own  ideas  about  running 
a  bank.  First  of  all,  it  must  be  strong;  his  cash  re- 
serve was  his  pride.  The  City  Bank  always  had 
a  great  holding  of  surplus  cash.  Whenever  there 
is  a  panic,  everybody  puts  his  money  in  the  safest 
place  he  knows.  Moses  Taylor's  bank  was  safe 
and  strong;  with  every  panic  it  grew  stronger. 
The  story  of  the  City  Bank  from  the  time  Taylor 
took  charge  of  it  is  a  record  of  steady  appreciation 
in  credit  and  reputation.  Behind  it  stood  Moses 
Taylor,  with  his  enormous  private  fortune  which 
was  estimated  at  fifty  millions  when  he  died  in 
1882.  During  that  period  Wall  Street  had  grown 
out  of  its  swaddling  clothes  and  had  become  a  cen- 
ter of  finance  and  commerce  far  outreaching  that 
of  any  other  city  in  the  country.  In  the  neighbor- 
hood of  the  City  Bank,  and  doing  active  business 
with  it,  were  still  the  sugar  merchants,  the  cotton 
brokers,  the  metal  merchants,  to  whom  had  been 
added,  as  the  years  went  on,  the  important  anthra- 
cite coal  interests,  the  leading  New  York  gas  com- 
panies, and  some  of  the  railway  companies  of  the 
South  and  West. 

When  Moses  Taylor  died,  the  future  of  the  City 
Bank,  as  the  strongest  if  not  the  largest  institution 
of  its  kind,  was  for  a  time  uncertain.  Percy  R. 


62  THE  MASTERS  OF  CAPITAL 

Pyne,  a  kindly,  gentle  man,  who  had  charge  of  the 
Taylor  mercantile  interests,  ran  the  bank  for  the 
next  nine  years;  but  during  his  administration  no 
startling  developments  took  place.  The  bank  held 
its  own;  that  was  all.  But,  with  the  death  of  Pyne 
in  1891,  a  real  "master  of  capital"  appeared  as  the 
head  of  this  famous  bank.  James  Stillman  was 
born  in  Brownsville,  Texas,  in  1850,  of  New  Eng- 
land parents.  He  was  a  shy,  reticent  child,  trained 
from  the  first  in  the  virtues  and  customs  of  the  old 
school  merchant  class.  One  of  his  earliest  play- 
things, which  he  always  preserved,  was  a  toy  bank, 
across  the  front  of  which  he  had  printed  "City 
Bank,"  his  father  having  been  associated  with 
Moses  Taylor  and  the  City  Bank  interests.  During 
his  teens  his  father  was  stricken  with  paralysis,  and 
young  Stillman  was  thrown  on  his  own  resources. 
At  the  age  of  twenty-one  he  was  a  member  of  the 
firm  of  Smith,  Woodward  and  Stillman,  cotton 
commission  merchants  on  South  Street,  near  Wall. 
But  Stillman  did  not  care  for  ordinary  mercantile 
business.  While  his  partners  were  actively  carry- 
ing on  the  mercantile  end  of  the  business  with 
great  success,  he  associated  himself  more  and  more 
with  men  of  financial  knowledge  and  power.  In 
the  early  eighties,  he  was  elected  to  the  board  of 


STANDARD  OIL  AND  WALL  STREET      63 

directors  of  the  Chicago,  Milwaukee  and  St.  Paul 
Railroad,  which  was  then  seeking  stronger  financial 
connections.  At  the  same  time  William  Rocke- 
feller —  whose  bulging  cash  assets,  as  well  as  his 
brother  John's,  were  looking  for  an  outlet  —  James 
T.  Woodward,  president  of  the  Hanover  National 
Bank,  and  Philip  D.  Armour,  the  great  packer  of 
the  Middle  West,  were  elected  to  the  same  board. 

Association  on  the  board  of  directors  of  the  St. 
Paul  property  brought  Stillman  and  Rockefeller 
together,  and  their  intimacy  grew  closer  when  in 
1885  William  Rockefeller  was  induced  to  become 
a  director  of  the  Hanover  Bank  of  which  Stillman 
was  also  a  director.  They  became  personal  friends 
as  well  as  business  associates;  and  when  in  1891 
the  presidency  of  the  City  Bank  was  offered  Still- 
man, the  Rockefeller  business  naturally  began  to 
gravitate  to  that  institution.  But  no  one  realized 
at  that  time  that  Stillman  was  a  great  banking 
genius  or  was  consciously  planning  the  union  of  two 
great  interests  with  the  same  policy  of  accumulat- 
ing heavy  cash  resources  —  the  City  Bank  and  the 
great  Standard  Oil  Company. 

The  business  of  the  bank  displayed  new  life 
almost  immediately.  In  1891  its  deposits  were 
only  twelve  million  dollars,  but  before  the  end  of 


64  THE  MASTERS  OF  CAPITAL 

the  panic  year  1893,  they  had  risen  to  thirty-one 
millions.  In  1891  there  were  several  New  York 
banks  with  double  the  deposits  of  the  City  Bank; 
two  years  later  it  was  the  largest  bank  in  New 
York  and  was  steadily  becoming  the  greatest 
reservoir  of  cash  in  America.  Slowly  but  surely 
the  alliance  with  the  Rockefeller  interests  became 
closer.  William  Rockefeller,  who  for  many  years 
had  been  in  charge  of  the  finances  of  Standard  Oil, 
invested  more  and  more  of  its  surplus  through  the 
instrumentality  of  the  City  Bank.  In  the  dark 
days  of  1893,  whenever  the  Standard  Oil  stepped 
into  Wall  Street  to  relieve  the  money  strain  by 
lending  its  idle  millions  temporarily,  the  City  Bank 
handled  the  business.  It  was  not  long,  therefore, 
before  the  institution  began  to  be  known  as  the 
"Standard  Oil  Bank." 

But  lending  money  in  Wall  Street  was,  indeed, 
only  a  small  job  for  Standard  Oil,  whose  cash  assets 
grew,  between  1882  and  1895,  from  $55,000,000 
to  over  $150,000,000,  while  at  the  same  time  its 
stockholders  received  no  less  than  $118,000,000  in 
dividends.  This  great  accumulation  of  cash  was 
not  needed  in  the  oil  business,  and  it  had  to  be 
put  to  some  profitable  use.  The  Rockefellers  were 
not  the  type  of  investors  who  were  satisfied  with 


STANDARD  OIL  AND  WALL  STREET      65 

five  or  six  per  cent;  they  had  been  educated  in  a 
different  school.  They  meant  to  make,  if  possible, 
as  large  profits  in  the  investment  of  their  surplus 
cash  as  they  had  been  accustomed  to  make  in 
their  own  line  of  business.  But  to  make  money 
at  so  rapid  a  pace  called  for  the  same  shrewd, 
superior  business  methods  that  had  been  followed 
in  the  oil  business.  To  discerning  men,  it  was  clear 
that  ultimately  these  other  enterprises  into  which 
Standard  Oil  put  its  funds  must  be  controlled  or 
dominated  by  Standard  Oil.  William  Rockefeller 
had  anticipated  this  development  to  some  extent 
years  before  when  he  became  active  in  the  financial 
management  of  the  Chicago,  Milwaukee  and  St. 
Paul  Railroad.  But  it  was  not  until  after  the 
panic  of  1893  that  he  and  his  associates  began  to 
reach  out  aggressively  to  control  the  destinies  of 
many  corporations. 

\Vhen  in  1897,  Edward  H.  Harriman  and  Kuhn, 
Loeb  and  Company  agreed  upon  the  reorganiza- 
tion of  the  Union  Pacific,  as  will  be  narrated  in 
a  subsequent  chapter,  they  decided  to  finance  the 
undertaking  through  the  City  Bank.  They  chose 
this  bank  because  the  Union  Pacific  reorganization, 
involving  a  payment  of  over  $45,000,000  in  cash 


66  THE  MASTERS  OF  CAPITAL 

to  the  United  States  Government,  was  then  the 
largest  cash  transaction  of  its  kind,  and  the  City 
Bank,  with  its  great  name  and  resources,  was  the 
fittest  instrument  for  their  purpose.  In  this  way 
Standard  Oil  became  associated  with  the  Union 
Pacific  and  with  the  Harriman  and  Kuhn-Loeb  in- 
terests. Among  the  first  directors  of  the  reorganized 
Union  Pacific  were  Jacob  H.  Schiff,  Edward  H. 
Harriman,  Henry  C.  Frick,  James  Stillman,  and 
William  Rockefeller.  The  City  Bank  men  did  not 
at  first  put  much  money  into  the  Union  Pacific; 
but  they  were  important  factors  in  the  underwrit- 
ing syndicate,  which  got  millions  of  stock  as  a  fee. 
Many  more  millions  were  later  bought  by  the 
members  of  the  syndicate  at  from  twenty  to  thirty 
dollars  a  share,  until  ultimately  about  one-third 
of  the  entire  stock  (practically  the  control)  rest- 
ed in  the  hands  of  William  Rockefeller,  James 
Stillman,  Edward  H.  Harriman,  and  Kuhn,  Loeb 
and  Company. 

From  the  very  start  the  Union  Pacific  was  fi- 
nanced in  traditional  Standard  Oil  fashion.  It 
was  a  veritable  bank.  It  kept  and  handled  great 
cash  resources  with  all  the  skill  of  the  strong  finan- 
ciers who  were  charged  with  its  management.  In 
the  following  decade,  through  the  brilliant  and 


STANDARD  OIL  AND  WALL  STREET      67 

daring  activities  of  Harriman,  with  the  solid  back- 
ing of  Standard  Oil,  the  Union  Pacific  rolled  up 
nearly  a  billion  and  a  half  of  capital  on  its  own 
system  and  held  the  absolute  control  of  about 
two  billions  of  other  capital. 

Meanwhile  the  profits  of  Standard  Oil,  and  of 
the  Rockefeller  group  as  a  whole,  were  rolling  over 
and  over  and  growing  like  a  snowball.  The  Union 
Pacific  alone  was  not  enough  to  keep  this  great 
money  mill  working.  Other  outlets  must  be  found. 
William  Rockefeller  increased  his  interest  in  the 
St.  Paul;  John  D.  Rockefeller,  whose  only  impor- 
tant activity  outside  of  petroleum  had  been  the 
Lake  Superior  ore  lands,  now  joined  with  the  de- 
cadent management  of  the  Jay  Gould  estate,  and 
bought  large  investments  in  the  New  York,  New 
Haven  and  Hartford  and  other  eastern  railroad 
systems.  And  still  other  activities  engaged  this 
same  group  as  the  decade  closed.  The  City  Bank 
—  now  the  National  City  Bank  —  had  tradition- 
ally been  the  bank  of  the  metal  merchants  and 
had  always  kept  its  connections  with  them.  There 
were  also  men  in  the  Standard  Oil  group  who  were 
identified  with  raw  materials,  particularly  cop- 
per. Henry  H.  Rogers,  who  was  now  vice-presi- 
dent of  the  Standard  Oil  Company  and  practically 


68  THE  MASTERS  OF  CAPITAL 

its  manager  and  who  had  in  recent  years  gone 
extensively  into  copper  mining,  now  formed  a 
gigantic  holding  company  known  as  the  Amal- 
gamated Copper  Company,  which  acquired  con- 
trol of  the  Anaconda  Copper  Company  at  Butte, 
Montana.  This  syndicate  was  floated  in  Wall 
Street  through  the  National  City  Bank.  The  capi- 
tal was  $150,000,000,  and  Amalgamated  Copper, 
supported  by  Rockefeller  money  and  the  im- 
mense prestige  of  Standard  Oil,  at  once  became 
the  favorite  speculative  stock  of  the  day. 

The  deposits  of  the  National  City  Bank  had 
now  mounted  to  above  $100,000,000,  and  its  capi- 
tal had  increased  from  a  nominal  three  millions  to 
twenty-five  millions,  with  fifteen  millions  of  sur- 
plus. It  overshadowed  every  other  institution  in 
the  country.  The  so-called  Morgan  banks,  such 
as  the  First  National,  began  to  look  like  pygmies 
beside  it.  The  bank  now  occupied  a  unique  posi- 
tion in  the  eyes  of  the  American  public;  it  was  the 
leading  institution  of  the  "Money  Power."  And 
by  "Money  Power"  was  usually  meant  the  Rocke- 
fellers and  their  allies,  who  were  constantly  show- 
ing their  influence  and  power  in  new  directions. 
They  had  recently  gone  into  public  utilities,  and 
jointly  with  William  C.  Whitney,  who  was  allied 


STANDARD  OIL  AND  WALL  STREET     69 

by  marriage  with  Oliver  H.  Payne  and  had  become 
a  large  stockholder  in  Standard  Oil,  had  secured 
control  of  the  Consolidated  Gas  Company  of  New 
York.  The  latter  company  in  turn  had  acquired 
control  of  several  competing  gas  companies,  hither- 
to identified  with  the  old  City  Bank  interests. 
Then  in  1899  had  occurred  the  spectacular  merger 
with  the  Edison  Illuminating  Company  of  New 
York.  By  one  stroke  all  the  lighting  companies 
in  New  York  City  were  brought  under  one  con- 
trol. It  looked  as  though  the  Morgan  star  was 
about  to  be  eclipsed  by  a  more  powerful  luminary. 


CHAPTER  V 

THE    STEEL   TRUST    MERGER 

IN  this  story  of  fabulous  wealth  and  phenomenal 
prosperity  we  have  almost  lost  sight  of  the  disas- 
trous panic  of  1893,  from  which  most  of  the  large 
industrial  enterprises  of  the  United  States  emerged 
in  a  dilapidated  condition.  In  the  long  depression 
which  followed,  manufacturers  everywhere  were 
forced  into  bankruptcy.  Capital  was  scarce,  the 
demand  for  goods  was  small,  and  thousands  of 
plants  remained  in  total  or  partial  idleness  for 
several  years.  This  was  particularly  true  of  the 
steel  and  iron  industry.  Most  of  the  steel  plants, 
always  excepting  the  Carnegie  Works,  were  dor- 
mant or  moribund.  Dividends  were  discontinued; 
foreclosures  were  the  order  of  the  day;  investors 
had  lost  their  capital. 

The  tariff  changes  of  1894  had  been  a  hard  blow 
to  many  industries  which  had  grown  up  and  fat- 
tened in  a  quiet  way  during  the  long  period  of  high 

70 


THE  STEEL  TRUST  MERGER  71 

protection  from  the  close  of  the  Civil  War  to  the 
second  Cleveland  administration.  Then,  too,  the 
Sherman  Act  of  1890,  aimed  particularly  at  com- 
binations in  restraint  of  trade,  had  frightened  in- 
vestors away  from  such  "industrial  trusts"  as  the 
Standard  Oil  Trust,  the  Cordage  Trust,  the  Sugar 
Trust,  and  the  Whiskey  Trust  which  in  the  eigh- 
ties had  thrived,  unmolested  by  the  law.  While 
they  were  all  finally  reorganized  in  such  a  way 
as  to  avoid  the  penalties  of  the  law,  banking  and 
investment  prejudice  was  strongly  against  them. 

But  when  the  Republican  party  returned  to 
power  in  1897  and  immediately  enacted  a  new 
tariff  law,  with  high  protective  duties,  and  when 
at  the  same  time  certain  court  decisions  were 
handed  down  which  seemed  to  limit  the  scope  of 
the  Sherman  Act,  a  wave  of  reviving  prosperity 
swept  over  the  country,  and  capital  turned  with 
new  confidence  to  the  industrial  field.  Several 
of  the  earlier  trusts  besides  Standard  Oil  had 
survived  the  panic  and  had  been  reorganized  to 
conform  to  the  law,  notably,  the  American  Sugar 
Refining  Company  and  the  American  Tobacco  Com- 
pany. The  new  industrial  combinations  were  mod- 
eled after  these.  Instead  of  placing  the  control 
of  acquired  plants  in  the  hands  of  "trustees," 


72  THE  MASTERS  OF  CAPITAL 

holding  companies  were  formed,  which  acquired 
all  or  a  majority  of  stocks  in  certain  competing 
plants  and  merged  these  plants  under  one  control, 
often  by  exchanging  the  stock  of  the  holding 
company  for  the  stock  of  the  plant. 

The  industrial  consolidation  movement  was  ag- 
gressively under  way  by  1899,  when  the  time  for 
it  was  ripe.  Money  was  cheap,  credit  was  every- 
where available,  and  prosperity  was  rising  through- 
out the  country.  All  the  important  railroad  re- 
organizations, as  we  have  seen,  had  been  carried 
through,  and  the  great  bankers,  whose  coffers 
swelled  with  huge  underwriting  commissions,  were 
looking  for  new  business.  When  the  promoters  of 
the  new  type  of  industrial  combination  sought 
banking  support  in  Wall  Street,  they  met  with 
little  difficulty.  Wall  Street  was  not  slow  to  per- 
ceive great  possibilities  in  the  financing  of  big  in- 
dustrial enterprises.  A  conspicuous  example  was 
the  American  Tobacco  Company,  which  had  been 
created  in  1890  as  a  combination  of  Allen  and 
Ginter  of  Richmond,  W.  Duke,  Sons  and  Company 
of  Durham,  North  Carolina,  and  a  number  of  other 
well-known  manufacturers.  Its  original  capital 
had  been  ten  millions  of  preferred  stock,  represent- 
ing the  cost  of  the  properties,  and  fifteen  millions 


THE  STEEL  TRUST  MERGER  73 

of  common  stock,  representing  good  will  or  "  water." 
But  the  business  had  forged  ahead  so  rapidly 
that  by  1898  the  "capital"  was  multiplied  fivefold, 
creating  a  new  group  of  millionaires. 

Then  arose  the  great  Amalgamated  Copper  Com- 
pany, under  the  direction  of  Henry  H.  Rogers, 
and  speculation  in  "industrials"  became  more  and 
more  the  order  of  the  day  on  the  Stock  Exchange. 
In  quick  succession  a  long  string  of  new  combina- 
tions followed;  notably  the  American  Smelting 
and  Refining  Company,  with  more  than  one  hun- 
dred millions  of  capital  and  embracing  over  one 
hundred  plants;  the  American  Woolen  Company, 
consolidating  a  large  number  of  New  England 
woolen  mills  under  a  fifty  million  dollar  capitaliza- 
tion; the  American  Car  and  Foundry  Company, 
merging  the  large  car-building  plants;  the  Ameri- 
can Hide  and  Leather  Company,  consolidating 
over  twenty  large  manufacturers  of  upper  leathers; 
the  International  Paper  Company,  a  fifty  million 
dollar  combination  of  paper  manufacturers;  and 
a  large  number  of  other  similar  mergers  in  various 
lines  of  industry. 

But  the  biggest  of  all  the  industrial  trusts  was 
the  merger  of  the  steel  and  iron  interests  of  the 
country,  which  began  with  the  incorporation  of  the 


74  THE  MASTERS  OF  CAPITAL 

Federal  Steel  Company  in  September,  1898,  as  a 
holding  company  to  acquire  the  stocks  of  the  Illi- 
nois Steel  Company,  the  Minnesota  Iron  Company, 
the  Lorain  Steel  Company,  and  the  Elgin,  Joliet 
and  Eastern  Railway,  a  belt  line  operating  about 
the  city  of  Chicago.  The  authorized  capital  of  this 
new  concern  was  two  hundred  million  dollars,  of 
which  about  one-half  was  issued  at  the  start.  It 
was  a  powerful  combination  and  was  in  the  hands 
of  strong  and  able  financiers.  The  firm  of  J.  P. 
Morgan  and  Company  took  a  leading  part  in 
financing  the  enterprise.  The  general  counsel  of 
the  Illinois  Steel  Company,  Judge  Elbert  H.  Gary, 
a  leading  corporation  lawyer  of  Chicago,  thus  came 
into  close  touch  with  "Jupiter"  Morgan  and  was 
chosen  as  the  first  president  of  the  new  company. 
The  wisdom  of  the  choice  was  well  demonstrated 
by  subsequent  experience. 

Following  came  the  American  Steel  and  Wire 
Company,  with  ninety  millions  of  capital,  fathered 
by  the  well-known  John  W.  Gates.  This  was  a 
combination  of  big  western  plants,  many  of  them 
specializing  in  barbed  wire,  nails,  and  wire  fencing, 
but  including  many  other  industries  and  encroach- 
ing more  or  less  closely  on  the  field  preempted  by 
the  Federal  Steel  Company.  Gates  had  originally 


THE  STEEL  TRUST  MERGER  75 

been  a  barbed  wire  salesman  and  was  a  notorious 
speculator.  There  followed  still  other  companies: 
the  American  Tin  Plate  Company,  with  fifty  mil- 
lions of  capital,  the  American  Steel  Hoop  Company, 
the  National  Steel  Company,  and  two  Morgan  con- 
solidations, the  National  Tube  Company  and  the 
American  Bridge  Company. 

Carnegie  and  his  associates  were  watching  the 
situation  closely.  The  great  revival  in  steel  and 
iron  had  naturally  favored  them,  and  their  power 
was  steadily  growing.  But  Carnegie  and  his  two 
chief  partners,  Frick  and  Phipps,  viewed  the  em- 
pire of  business  from  different  angles.  For  a  decade 
or  more  Carnegie  had  been  genuinely  anxious  to 
retire.  He  had  made  his  millions,  he  was  getting 
on  in  life,  and  he  had  no  desire  to  become  a  great 
banker  with  multitudinous  outside  interests,  like 
Morgan,  William  Rockefeller,  or  Stillman.  Henry 
C.  Frick,  on  the  other  hand,  was  a  natural  master 
of  capital;  he  foresaw  the  trend  of  the  times.  To 
his  mind  the  days  of  one-man  power  were  over; 
great  enterprises  in  the  future  would  be  dominated 
and  controlled  by  groups  of  capitalists  of  diverse 
interests;  and  even  complete  industries,  if  they 
hoped  to  live,  would  of  necessity  become  allied 
with  others.  He  believed  that  combination  must 


76  THE  MASTERS  OF  CAPITAL 

take  the  place  of  competition  and  that  he  and  his 
associates  must  sooner  or  later  become  a  part  of 
the  consolidation  movement.  Carnegie  saw  in  the 
movement  only  an  opportunity  to  sell  out  at  his 
own  price.  Naturally  Carnegie  and  Frick  quar- 
reled. Frick  was  becoming  more  and  more  inter- 
ested in  matters  outside  of  the  steel  business.  He 
had  been  connected  with  William  Rockefeller  and 
Henry  H.  Rogers  in  various  enterprises  and  was 
even  then  one  of  the  largest  stockholders  in  the 
Pennsylvania  Railroad,  a  director  in  many  corpo- 
rations, and  a  conspicuous  figure  in  Wall  Street. 
These  activities  displeased  Carnegie.  His  other 
partner,  Henry  Phipps,  sided  with  Frick  and  so 
also  estranged  himself  from  Carnegie. 

Meanwhile  a  group  of  Chicago  speculators  and 
promoters  had  come  to  the  front.  William  H. 
Moore,  a  daring  promoter,  had  organized  the  Dia- 
mond Match  Company,  the  National  Biscuit  Com- 
pany, and  the  American  Tin  Plate  Company. 
He  and  his  associates  had  made  several  millions 
out  of  the  organization  of  the  American  Steel 
Hoop  Company  and  the  National  Steel  Company. 
Flushed  with  success  and  with  big  cash  balances, 
Moore  now  approached  Carnegie  and  offered  him 
a  million  dollars  for  a  ninety-day  option  on  his 


THE  STEEL  TRUST  MERGER  77 

stock  in  the  Carnegie  Steel  Company,  the  price 
being  $157,950,000  of  which  over  a  third  was 
to  be  in  cash.  Carnegie  agreed,  provided  Moore 
would  take  Frick  and  Phipps  with  him.  Carnegie 
guessed  that  while  Moore  single  handed  might  not 
be  able  to  raise  the  money,  Frick,  Phipps,  and 
Moore  together  surely  would.  But  it  was  not  all 
plain  sailing.  Morgan  had  not  yet  become  con- 
vinced of  the  soundness  of  the  industrial  move- 
ment; the  Rockefellers  could  not  be  made  to  see 
the  possibilities  of  such  a  gigantic  scheme  as  this, 
though  John  D.  Rockefeller  had  personally  taken 
some  interest  in  the  Federal  Steel  Company.  And 
just  then  a  temporary  panic  occurred  in  Wall 
Street,  as  a  result  of  the  sudden  death  of  Roswell  P. 
Flower,  who  had  been  the  conspicuous  operator  in 
the  inflated  bull  market.  This  incident  hampered 
the  efforts  of  Frick  and  Moore  and  before  they 
could  raise  the  necessary  money  the  ninety-day 
option  had  expired.  Carnegie  refused  to  extend 
it  a  single  day  and  quietly  pocketed  the  million 
dollars  which  had  been  given  him  for  the  option. 

As  the  steel  business  continued  to  flourish  and 
the  country  enjoyed  great  prosperity,  Carnegie  de- 
cided that  his  first  offer  had  been  entirely  too  cheap, 
and  a  little  later,  when  John  D.  Rockefeller  tried 


78  THE  MASTERS  OF  CAPITAL   • 

to  buy  him  out,  he  placed  his  price  at  $250,000,000. 
It  was  Rockefeller's  desire  to  solidify  his  interests 
in  the  ore  lands  and  ore  railway  in  Minnesota, 
as  well  as  the  capital  invested  in  his  fleet  of  ore- 
carrying  vessels  on  the  Great  Lakes.  But  Car- 
negie's price  was  too  high  for  Rockefeller,  and 
nothing  came  of  the  proposal. 

When  Andrew  Carnegie  was  laying  the  founda- 
tions of  his  steel  and  iron  business,  he  built  a  small 
summer  bungalow  at  Cresson  Springs,  Pennsyl- 
vania. Here  there  was  a  livery  stable  run  by  a 
man  named  Schwab,  from  whom  Carnegie  was  in 
the  habit  of  hiring  horses.  Schwab  had  a  son 
called  Charlie  who  used  to  hang  around  the  livery 
stable,  a  merry,  good-natured  youngster  whom 
every  one  liked.  The  boy  had  a  good  voice  and 
interested  Carnegie,  who  was  very  fond  of  music. 
"When  that  boy  of  yours  is  ready  for  a  job, 
send  him  to  me,"  said  Carnegie  to  the  father 
one  day. 

And  so,  by  good  luck,  in  1880,  at  the  age  of  eigh- 
teen, Charles  M.  Schwab  entered  the  employment 
of  Carnegie  in  the  Edgar  Thomson  Steel  Works. 
The  young  fellow  made  good  and  became  chief 
engineer  and  assistant  manager.  When  Carnegie 


THE  STEEL  TRUST  MERGER  79 

bought  out  an  important  competitor  at  Home- 
stead, Schwab  was  selected  as  superintendent  of 
the  plant  and  showed  his  mettle  by  promptly 
making  the  Homestead  Steel  Works  the  most 
profitable  of  all  the  Carnegie  properties.  In  1889 
he  was  brought  back  to  Braddock  and  placed  in 
charge  of  the  Edgar  Thomson  Steel  Works  and 
three  years  later  was  made  general  superintendent 
of  both  plants. 

Some  time  afterward  Carnegie  told  Schwab 
that  he  had  decided  to  make  him  a  vice-president, 
to  which  Schwab  replied: 

"No,  Mr.  Carnegie,  I  am  no  good  carrying  out 
other  men's  orders,  and  I  should  have  to  do  that  as 
a  vice-president.  As  superintendent  I  am  boss  of 
the  plants  I  manage. " 

Later  again  Carnegie  approached  him.  "Well, " 
he  said,  "if  you  won't  be  vice-president,  I  suppose 
we'll  have  to  make  you  president."  And  they 
did.  In  1897  Charles  M.  Schwab  became  president 
of  the  Carnegie  Steel  Company. 

Schwab  naturally  adopted  Carnegie's  ideas  and 
business  policy.  He  was  long  opposed  to  Frick's 
theory  that  the  future  of  successful  business  lay 
in  combination  and  interdependence.  ' '  A  big  busi- 
ness enterprise,"  he  said,  "is  invariably  built  up 


80  THE  MASTERS  OF  CAPITAL 

around  one  man. "  But  this  was  simply  an  echo  of 
the  philosophy  of  Carnegie,  and  when  the  "com- 
munity of  interest"  movement  began  to  dominate 
American  industry  Schwab  gradually  changed  his 
view.  He  was  but  thirty-eight  years  old,  and  his 
life  was  still  before  him.  Carnegie  at  sixty-five 
was  naturally  wedded  to  the  theories  of  the  old 
school.  Besides,  Carnegie  wanted  to  retire  from 
business,  while  Schwab  felt  that  he  was  just  get- 
ting into  business.  At  a  banquet  given  to  him  at 
the  University  Club  in  New  York,  the  younger  man 
came  out  strongly  in  favor  of  combination  among 
corporations  and  deprecated  cutthroat  competition 
and  the  rule-or-ruin  policy. 

After  the  failure  of  the  negotiations  with  Moore 
and  Rockefeller  for  the  sale  of  his  business,  Car- 
negie quietly  bided  his  time  until  the  Morgan  in- 
terests had  plunged  so  deeply  into  the  steel  business 
in  connection  with  the  Federal  Steel  Company, 
the  National  Tube  Company,  and  the  American 
Bridge  Company,  that  they  could  not  possibly 
back  out.  Then  he  set  on  foot  a  series  of  opera- 
tions designed  to  create  havoc  among  all  the  steel 
corporations  of  the  country.  To  fight  Morgan, 
he  announced  that  he  would  go  into  the  tube  busi- 
ness in  direct  competition  with  the  National  Tube 


THE  STEEL  TRUST  MERGER  81 

Company,  and  he  actually  acquired  five  thousand 
acres  of  land  at  Conneaut  on  Lake  Erie  and  let  con- 
tracts for  the  construction  of  a  twelve  million  dollar 
tube  plant.  To  fight  John  W.  Gates  and  his  Ameri- 
can Steel  and  Wire  Company,  he  announced  that 
a  gigantic  rod-mill  would  be  erected  at  Pittsburgh. 
To  fight  Rockefeller,  he  ordered  the  construction 
of  a  large  fleet  of  ore-carrying  steamships  to  oper- 
ate on  the  Great  Lakes.  To  fight  the  Pennsylvania 
Railroad,  he  set  a  corps  of  surveyors  laying  out 
a  railroad  route  from  Pittsburgh  to  the  Atlantic 
Ocean.  He  also  planned  the  immediate  construc- 
tion of  an  ore-carrying  railroad  of  vast  capacity 
from  Lake  Erie  to  the  Pittsburgh  district. 

Such  threats  as  these  were  taken  seriously,  for 
everybody  recognized  that  Carnegie  had  the  power 
to  carry  them  through.  Already  he  had  the  whip 
hand  in  the  steel  world.  The  profits  of  his  corpora- 
tion in  1900  had  been  over  forty  million  dollars; 
he  was  already  making  over  one-fourth  of  the 
Bessemer  steel  produced  in  the  country  and  half 
of  the  structural  steel  and  armor  plate.  His  costs 
were  lower  than  those  of  any  of  his  competitors, 
and  he  had  no  debts.  The  entire  steel  trade  of  the 
country  was  thrown  into  confusion.  There  was  an 
actual  panic  among  the  millionaires  of  Wall  Street. 


82  THE  MASTERS  OF  CAPITAL 

"We  must  get  rid  of  Carnegie/'  they  all  shouted. 
"He  will  wreck  both  himself  and  us;  he  is  a  busi- 
ness pirate. "  And  the  frightened  financiers,  whose 
millions  were  tied  up  in  Federal  Steel,  American 
Steel  and  Wire,  and  the  other  great  companies, 
rushed  to  Morgan  for  help.  The  Standard  Oil 
bankers  were  appealed  to;  but  the  undertaking 
called  for  such  a  gigantic  outlay  and  was  fraught 
with  such  uncertainties,  that  even  these  bold  finan- 
ciers hesitated,  evidently  preferring  that  Morgan 
should  bear  the  brunt  of  the  responsibility. 

Just  at  this  time,  Charles  M.  Schwab  and  John 
W.  Gates  put  their  heads  together  and  agreed  to 
interview  Morgan.  Whether  Schwab's  overtures 
were  directed  by  Carnegie  or  not  may  never  be 
known,  but  Schwab  by  this  time  saw  as  clearly  as 
any  one  that  interdependence  in  the  steel  busi- 
ness was  absolutely  essential  to  its  future  prosper- 
ity. As  for  Gates,  his  motives  were  clear  enough : 
he  was  one  of  the  panic-stricken  millionaires  who 
were  threatened  with  disaster.  Schwab  and  Gates 
spent  eight  hours  trying  to  convince  Morgan  of 
the  necessity  of  buying  Carnegie  out.  Schwab  set 
forth  the  strong  features  of  the  Carnegie  business 
and  the  glittering  possibilities  of  industrial  peace 
by  means  of  a  combination.  Tradition  says  that 


THE  STEEL  TRUST  MERGER  83 

he  spoke  with  much  eloquence;  at  any  rate  he 
made  the  sale;  Morgan  agreed  to  pay  Carnegie  his 
price.  This  price  was  much  higher  than  that  stated 
to  Frick  and  Moore  only  eighteen  months  before, 
higher  even  than  the  price  named  to  John  D.  Rocke- 
feller the  previous  year.  Frick  and  Moore  could 
have  bought  the  entire  Carnegie  business  for  about 
$157,000,000;  it  was  offered  to  Rockefeller  for 
$250,000,000;  but  the  amount  Morgan  paid  in 
January,  1901,  was  equivalent  to  a  cash  price  of 
over  $447,000,000.  This  was  represented  by  giving 
Carnegie  and  his  associates  $303,450,000  in  bonds 
and  nearly  two  hundred  million  dollars'  worth  of 
stock  which  immediately  had  a  market  value  of 
about  $144,000,000.  It  was  the  greatest  sale  in  the 
history  of  the  world. 

Carnegie  was  now  definitely  shelved,  so  far  as 
the  steel  business  was  concerned;  his  tube  plant 
scheme  at  Conneaut,  his  plans  for  a  railroad  from 
Pittsburgh  to  the  sea,  and  his  big  rod-mill  project 
at  Pittsburgh  were  all  abandoned.  But  Morgan 
found  his  hands  full  when  he  came  to  deal  with  the 
other  big  steel  interests.  The  Federal  Steel  direc- 
tors, aside  from  Judge  Gary,  had  opposed  the  idea 
of  allowing  Carnegie  to  sandbag  them;  Gates  now 
felt  that  Morgan  should  pay  him  a  bigger  price 


84  THE  MASTERS  OF  CAPITAL 

for  American  Steel  and  Wire  than  he  had  first 
named;  Rockefeller,  with  his  rich  Lake  Superior 
ore  beds,  also  wanted  large  concessions  if  he  was  to 
become  a  party  to  the  combination.  In  short,  all 
the  companies  which  it  was  planned  to  put  into 
the  merger  suddenly  discovered  that  their  proper- 
ties were  worth  millions  more,  now  that  the  menace 
of  Carnegie  had  been  removed. 

It  was  indeed  a  difficult  task  that  confronted  Pier- 
pont  Morgan.  The  various  smaller  steel  "  trusts  " 
that  had  been  formed  during  the  two  previous  years 
were  overcapitalized  and  had  issued  reams  of 
"watered"  stocks.  For  when  the  mania  for  con- 
solidation was  under  full  swing  during  the  period 
which  began  with  the  close  of  the  war  with  Spain 
in  1898,  discretion  had  been  thrown  to  the  winds, 
and  industrial  plants  of  every  type  had  been  bought 
up  by  promoters  regardless  of  price.  An  incident  is 
told  which  —  whether  true  or  not  —  will  illustrate 
the  tendency.  When  one  of  the  smaller  "trusts" 
was  being  formed,  a  party  of  steel  men  were  on  their 
way  to  Chicago  one  night  after  a  buying  tour.  The 
men  had  been  drinking  and  were  in  a  convivial 
mood.  Said  one,  "There's  a  steel  mill  at  the  next 
station;  let's  get  out  and  buy  it."  "Agreed!" 

It  was  past  midnight  when  they  reached  the 


THE  STEEL  TRUST  MERGER  85 

station,  but  they  pulled  the  plant  owner  out  of 
bed  and  demanded  that  he  sell  his  plant. 

"My  plant  is  worth  two  hundred  thousand 
dollars,  but  it  is  not  for  sale, "  was  the  reply. 

"Never  mind  about  the  price,"  answered  the 
hilarious  purchasers,  "we  will  give  you  three 
hundred  thousand  —  five  hundred  thousand." 

The  story  is  not  improbable,  for  most  of  the  con- 
stituent plants  had  been  bought  at  prices  far  above 
their  true  values.  Consequently,  the  corporation 
to  be  formed  must  have  a  fabulous  capitalization; 
and  stocks  and  bonds  must  be  issued  many  times  in 
excess  of  what  the  properties  would  have  brought 
at  forced  sales  in  normal  times.  But  Pierpont 
Morgan  was  equal  to  the  emergency.  He  first 
called  in  his  big  lieutenants,  one  of  whom  was  his 
young  partner,  George  W.  Perkins  —  a  man  des- 
tined to  influence  profoundly  the  policy  and  for- 
tunes of  the  corporation  about  to  be  born  —  and 
the  magnates  of  the  independent  companies,  in- 
cluding Elbert  H.  Gary,  Marshall  Field,  Norman 
B.  Ream,  Henry  C.  Frick,  and  H.  H.  Rogers.  It 
was  Morgan's  plan  at  first  to  include  in  the  com- 
bination only  those  steel  companies  with  which  his 
firm  had  already  become  identified,  but  it  was  soon 
seen  that  it  would  be  dangerous  to  exclude  the 


86  THE  MASTERS  OF  CAPITAL 

others.  If  the  Gates  interests  were  left  out,  they 
might  become  a  menace  to  the  peace  of  the  new 
concern,  for  John  W.  Gates  would  surely  attempt 
to  sandbag  Morgan  as  Carnegie  had  done.  If  the 
Moore  brothers  were  left  to  shift  for  themselves, 
they  might  get  together  with  others  and  do  the 
same  thing.  The  chief  danger  was,  however,  from 
the  Standard  Oil.  To  allow  John  D.  Rockefeller 
to  remain  independent,  with  his  big  Lake  Supe- 
rior deposits  and  his  fleet  of  ore-carrying  vessels 
on  the  Lake,  might  easily  lead  to  disaster.  A 
second  monster  steel  business  might  easily  be 
built  up  under  Standard  Oil  control.  Therefore  it 
must  be  a  case  of  all  or  none.  The  steel  industry 
must  be  completely  merged  into  one,  and  all  com- 
panies of  strong  financial  connections  or  large 
resources  must  be  included. 

Judge  Gary  was  appointed  to  open  up  negotia- 
tions with  the  independents.  Daniel  G.  Reid,  of 
the  American  Steel  Hoop  Company,  was  brought 
in,  and  he  induced  the  Moore  brothers  to  join 
the  combination.  The  Gates  group  received  what 
they  demanded,  and  then  Henry  C.  Frick  was 
sent  to  see  what  he  could  do  with  John  D.  Rocke- 
feller. Frick's  position  at  this  time  was  somewhat 
unique.  Since  his  break  with  Carnegie  a  couple  of 


THE  STEEL  TRUST  MERGER  87 

years  before  he  had  become  more  of  a  Wall  Street 
speculator  than  a  mere  stee^  man.  He  had  not 
definitely  allied  himself  with  either  Morgan  or 
Rockefeller  but  was  on  friendly  terms  with  both. 
He  had  close  associations  with  Henry  H.  Rogers 
.  and  James  Stillman ;  he  had  gone  into  Federal  Steel ; 
he  was  a  powerful  factor  in  the  affairs  of  the  Penn- 
sylvania Railroad;  altogether,  he  was  looked  upon 
as  one  of  the  leading  protagonists  of  the  "commu- 
nity of  interest"  idea  which  had  been  so  strongly 
championed  by  Cassatt  of  the  Pennsylvania  Rail- 
road, Harriman  of  the  Union  Pacific,  and  Hill  of 
the  Great  Northern. 

Frick  succeeded  without  much  trouble  in  bag- 
ging Rockefeller,  although  the  price  he  paid  looked 
high  at  the  time.  Rockefeller  received  eighty  mil- 
lions in  the  stock  of  the  new  corporation,  of  which 
half  was  preferred  stock,  besides  eight  and  one- 
half  million  dollars  in  cash  for  his  ore-carrying 
fleet.  These  were  huge  concessions,  but  the  control 
of  the  Lake  Superior  iron  mines  was  absolutely 
essential,  for  these  deposits  represented  two-thirds 
of  the  new  corporation's  ore  supply. 

Having  thus  gathered  together  all  the  important 
steel  interests  of  the  country,  Morgan  launched 
the  United  States  Steel  Corporation.  The  stock 


88  THE  MASTERS  OF  CAPITAL 

capitalization  was  in  excess  of  a  billion  dollars, 
with  a  bonded  debt  of  more  than  three  hundred 
millions,  and  both  the  big  banking  groups  of  Wall 
Street  were  firmly  tied  to  the  enterprise.  The  great 
merger  dominated  by  Morgan  drew  into  its  orbit 
even  the  Standard  Oil  "Money  Power."  Among 
the  big  names  included  in  the  syndicate,  aside  from 
Morgan  and  his  partners,  were  H.  H.  Rogers  and 
Daniel  O'Day  of  Standard  Oil;  Marshall  Field, 
William  H.  Moore,  James  H.  Moore,  Elbert  H. 
Gary,  John  W.  Gates,  H.  H.  Porter,  and  Norman 
B.  Ream,  of  Chicago;  Samuel  Mather  of  Cleveland; 
Nathaniel  Thayer  of  Boston;  and  Daniel  G.  Reid, 
Henry  C.  Frick,  Charles  M.  Schwab,  and  D.  O. 
Mills,  of  New  York.  So  under  the  control  of  a 
single  corporation  passed  seventy  per  cent  of  the 
American  iron  and  steel  industry.  That  industry, 
instead  of  being  operated  on  the  old  plan  of  in- 
dividual control  or  independent  corporate  con- 
trol, was  now  linked  with  scores  of  banks  of  great 
power,  with  railroads,  and  with  numerous  other 
corporate  undertakings. 


CHAPTER  VI 

HARRIMAN  AND   HILL 

EDWARD  H.  HARRIMAN  was  the  son  of  a  poor  and 
unsuccessful  Episcopal  clergyman  who  spent  the 
latter  days  of  his  life  as  a  bookkeeper  in  the  old 
Bank  of  Commerce  in  New  York.  Born  in  1848, 
young  Harriman  was  just  fourteen  years  old  when 
his  father  obtained  a  job  for  him  as  office  boy  with 
DeWitt  C.  Hays,  a  Wall  Street  stockbroker.  This 
was  just  about  the  time  when  Pierpont  Morgan 
was  preparing  to  get  into  business  in  America; 
when  Andrew  Carnegie  was  accumulating  his  first 
money  in  speculative  oil  and  railroad  ventures 
under  the  tutelage  of  Scott  and  was  scanning  the 
horizon  of  the  new  Bessemer  steel  business;  when 
John  D.  Rockefeller  was  laying  the  foundations 
of  Standard  Oil;  and  when  Henry  C.  Frick  —  one 
year  younger  than  Harriman  —  was  doing  duty 
as  an  errand  boy  in  Mount  Pleasant. 

From  the  very  first,  young  Harriman  displayed 

89 


90  THE  MASTERS  OF  CAPITAL 

unusual  ability.  He  also  had  that  trait  of  audacity 
which  had  shown  so  conspicuously  in  the  char- 
acters of  Frick,  Carnegie,  and  Morgan.  Almost 
immediately  he  began  to  make  a  little  money  in 
stocks.  And  he  widened  his  acquaintance  rapidly. 
He  became  intimate  with  Lewis  Livingston,  a 
member  of  one  of  the  oldest  New  York  families, 
who  had  a  son  named  James.  When  in  1870,  after 
having  worked  himself  up  to  the  position  of  book- 
keeper of  the  Hays  firm,  young  Harriman  bought 
a  seat  in  the  New  York  Stock  Exchange  at  a  cost 
of  about  three  thousand  dollars,  he  induced  James 
Livingston  to  go  into  the  stock  brokerage  business 
with  him  and  supply  capital  through  his  father. 
Harriman  was  successful  at  once  —  so  successful 
that  within  a  few  months  he  dissolved  partner- 
ship with  Livingston  and  formed  a  new  firm  with 
himself  at  the  head  and  his  brother  William  as  a 
partner.  He  cultivated  the  friendship  of  people  of 
means  and  social  standing  and  in  a  few  years  be- 
came prominent  among  the  younger  "aristocrats" 
of  New  York.  In  this  environment  he  ultimately 
came  into  close  touch  with  the  people  associated 
with  the  Illinois  Central  Railroad,  which  had  been 
built  during  the  years  prior  to  the  Civil  War  and 
had  proved  wonderfully  successful  from  the  start. 


HARRIMAN  AND  HILL  91 

Running  north  and  south,  it  caught  broadside  the 
westbound  tide  of  migration;  its  government  grant 
of  rich  Mississippi  Valley  lands  was  sold  early  at  a 
good  price;  soon  after  it  was  built  the  Civil  War 
gave  it  a  big  business,  and  it  escaped  the  ruinous 
competition  which  so  long  devastated  the  'trunk 
lines  running  east  and  west. 

A  group  of  old  New  York  merchants  had  built 
this  road.  Though  they  sold  five-sixths  of  its  stock 
in  England  and  Holland,  it  became  a  favorite  solid 
investment  for  many  of  the  old  families  of  New 
York.  The  Astors  and  the  Goelets  and  the  Cut- 
tings were  large  holders  of  its  stock  in  the  seventies 
and  eighties.  The  Illinois  Central,  indeed,  was 
quite  the  "society  railroad  "  of  New  York.  During 
the  long  period  from  1857  to  1883  the  property  had 
remained  under  the  direct  control  and  operation  of 
William  Henry  Osborne,  an  old  Manila  merchant 
who  had  returned  from  the  Philippines  in  the 
fifties  with  a  fortune  and  who  had  operated  the 
Illinois  Central  all  these  years  as  he  would  have 
operated  his  own  warehouse.  Osborne  had  a  sum- 
mer home  at  Garrison,  New  York,  where  he  was 
a  neighbor  of  the  old  and  rich  Fish  family,  a  younger 
member  of  which  was  Stuyvesant  Fish.  The  latter 
became  Osborne's  secretary  in  1872  and  a  few 


92  THE  MASTERS  OF  CAPITAL 

years  later  was  made  a  director  of  the  railroad.  In 
1883  when  Osborne  died,  he  practically  bequeathed 
the  management  of  the  railroad  to  his  secretary, 
although  Fish  did  not  actually  become  president 
until  some  years  later. 

Harriman  and  Fish  had  known  each  other  for 
many  years,  and  as  young  men  had  traveled  about 
town  a  great  deal  together.  In  1880  they  were 
both  directors  in  the  Ogdensburg  and  Lake  Cham- 
plain  Railroad,  a  property  of  which  Harriman  had 
hoped  to  acquire  the  control,  for  by  this  time  Har- 
riman had  made  very  substantial  progress  in  busi- 
ness, having  accumulated  several  hundred  thou- 
sand dollars  through  shrewd  trading  in  securities. 
He  was  now  beginning  to  turn  away  from  mere 
brokerage  to  railroad  management  and  finance. 

The  Illinois  Central  had  acquired  control  of  an 
extensive  system  of  lines  south  of  St.  Louis,  known 
as  the  Chicago,  St.  Louis  and  New  Orleans,  and 
Stuyvesant  Fish  had  sought  Harriman's  assistance 
in  placing  the  bonds.  In  this  work  Harriman  was 
notably  successful.  Meanwhile  he  had  himself 
acquired  a  large  block  of  Illinois  Central  stock 
and  had  become  more  and  more  the  confidential 
adviser  of  Fish.  At  that  time  there  was  a  large 
Dutch  stockholding  interest  in  the  road,  whose 


HARRIMAN  AND  HILL  93 

votes  were  cast  collectively  by  the  firm  that  had 
originally  placed  the  stock  in  Holland,  Boissevain 
Brothers.  One  member  of  this  firm  came  on  a  visit 
to  America.  Harriman  met  him,  gained  his  confi- 
dence, and  then  arranged  to  hold  his  proxies  in  the 
Illinois  Central  meetings.  Soon  afterwards  Harri- 
man was  elected  a  director  and  became  the  close 
associate  of  Stuy  vesant  Fish  in  the  actual  operation 
and  control  of  the  road. 

No  two  men  could  have  been  more  dissimilar  in 
personality  and  bearing  than  these  two.  Harri- 
man was  small,  quiet,  restless,  and  secretive;  Fish 
was  a  big,  open-faced,  easy-mannered  young  man, 
whose  blond  hair  and  great  stature  had  earned  for 
him  in  the  financial  district  the  name  of  "White 
Elephant."  For  a  time,  however,  the  two  men 
worked  together  in  harmony.  They  bought  a  por- 
tion of  the  old  Wabash,  St.  Louis  and  Pacific  after 
its  failure  in  1884;  in  1887  they  bought  the  Du- 
buque  and  Sioux  City  Railroad;  in  the  early  nine- 
ties they  bought  (much  against  the  will  of  Collis  P. 
Huntington)  the  chain  of  roads  with  which  Hunt- 
ington  had  planned  to  hitch  his  Southern  Pacific 
system  to  the  Atlantic  seaboard;  they  bought  an, 
important  section  of  the  St.  Louis,  Alton  and  Terre 
Haute,  which  George  Foster  Peabody  had  been 


94  THE  MASTERS  OF  CAPITAL 

developing  in  southern  Illinois,  thus  securing  an 
entry  of  their  own  into  St.  Louis;  and  they  pur- 
chased a  great  number  of  small  roads,  until,  from 
the  two  thousand  miles  they  had  in  1883,  they 
owned  and  controlled  in  1897  a  system  of  over 
five  thousand  miles. 

This  policy  of  expansion  did  not  bring  disaster, 
as  had  been  the  case  with  so  many  other  lines. 
All  through  this  period  the  road's  credit  remained 
high,  and  even  in  the  early  eighties  it  was  able  to 
sell  three  and  one-half  per  cent  bonds  while  other 
roads  of  good  credit  were  raising  money  at  five  or 
six  per  cent.  This  high  credit  of  the  Illinois  Cen- 
tral was  very  largely  due  to  the  rigid  policies  which 
Harriman  introduced  and  developed.  Harriman 
was  more  than  a  mere  banker  or  broker;  he  was  a 
practical  railroad  operating  man.  He  had  made 
a  thorough  study  of  railroading  and  had  early 
adopted  the  theory  that  the  first  duty  of  railroad 
management  was  to  maintain  the  character  of  the 
physical  property  and  to  consider  mere  current 
profits  as  secondary.  Thus,  in  the  management  of 
the  Illinois  Central,  he  never  "skinned"  the  road 
,  to  pay  dividends ;  he  never  allowed  the  roadbed  or 
equipment  to  become  inefficient.  Another  sound 
idea  he  adopted  was  always  to  provide  ample 


HARRIMAN  AND  HILL  95 

funds  and  reserves  for  contingencies;  never  to 
allow  his  property  to  take  financial  chances  in 
times  of  dullness  or  depression.  Even  when  he  was 
raising  large  amounts  of  new  capital  for  extensions 
or  purchases,  he  always  provided  far  more  cash 
assets  than  were  currently  needed. 

Harriman  had  very  soon  grown  powerful  enough 
to  cross  the  path  of  Pierpont  Morgan.  In  1887, 
Morgan  held  the  proxies  of  the  stockholders  in  the 
Dubuque  and  Sioux  City  Railroad,  which  Harri- 
man wished  to  buy  for  the  Illinois  Central.  Harri- 
man fought  his  plan  through  and  defeated  Morgan. 
This  coup  was  regarded  as  a  ten  days'  wonder  in 
Wall  Street.  From  that  time  on  Morgan  disliked 
Harriman.  Again,  in  1894,  Harriman  and  Morgan 
crossed  swords.  Harriman  owned  a  few  hundred 
thousand  dollars  worth  of  underlying  bonds  about 
the  time  that  Morgan  announced  his  plan  of  reor- 
ganization for  the  Erie  Railroad.  Harriman  ob- 
jected to  the  proposed  treatment  of  his  securities, 
brought  suit  to  prevent  the  drastic  reorganization, 
and  in  the  end  forced  Morgan  to  make  concessions. 

Harriman  was  as  yet  little  known  outside  of 
Wall  Street.  Although  chairman  of  the  finance 
committee  of  the  Illinois  Central  and  the  power 
behind  the  throne,  he  was  eclipsed  by  the  figure  of 


96  THE  MASTERS  OF  CAPITAL 

Fish.  But  in  1895  Harriman  stepped  to  the  front. 
The  Union  Pacific  Railroad  security  holders  were 
looking  in  vain  for  some  strong  banking  interests  to 
finance  their  property.  The  road  was  a  frightful 
wreck  with  a  tangled  mass  of  subsidiary  companies, 
and  the  United  States  Government  was  aggres- 
sively insisting  on  the  payment  of  the  huge  debt 
representing  the  original  government  loans,  with 
the  interest  that  had  accumulated  since  its  build- 
ing thirty  years  before.  Morgan  had  rejected  the 
suggestion  that  he  reorganize  it,  as  he  was  too 
fully  occupied  with  the  rejuvenation  of  many  other 
railroad  systems.  Harriman  then  saw  his  chance. 
He  decided  to  reorganize  the  Union  Pacific  himself, 
to  make  it  a  subsidiary  of  the  Illinois  Central,  and 
to  utilize  the  credit  of  the  latter  company  for  the 
gigantic  financing  which  would  be  necessary.  But 
before  he  had  progressed  very  far  in  this  plan  he 
met  with  opposition  from  Kuhn,  Loeb  and  Com- 
pany, who  had  become  bankers  for  the  Chicago, 
Milwaukee  and  St.  Paul,  the  Great  Northern  Rail- 
way, and  other  properties,  and  now  also  were  bent 
upon  reorganizing  the  Union  Pacific. 

A  keen  contest  for  mastery  followed.  At  first 
Jacob  H.  Schiff,  the  head  of  Kuhn,  Loeb  and 
Company,  persistently  ignored  Harriman,  feeling 


HARRIMAN  AND  HILL  97 

confident  that  no  interest  in  New  York  could  suc- 
cessfully reorganize  the  property  except  Morgan  or 
himself;  but  Harriman  soon  forced  him  to  change 
his  mind.  The  two  were  brought  together,  and, 
in  Wall  Street  parlance,  laid  their  respective  cards 
on  the  table.  It  was  an  interesting  and  convincing 
show-down.  Schiff  could  raise  the  much  needed 
hundred  millions  of  new  capital  at  five  or  six  per 
cent  through  his  strong  German  connections;  but 
Harriman  showed  how  he  could  raise  this  sum,  and 
more,  on  the  Illinois  Central  credit,  at  from  three 
and  one-half  to  four  per  cent.  Schiff  capitulated, 
and  finally  reached  an  agreement  with  this  new 
master  of  capital.  The  road  was  reorganized  by 
Kuhn,  Loeb  and  Company,  and  Edward  H.  Har- 
riman  was  made  the  first  chairman  of  its  board 
of  directors  and  later  its  president. 

Harriman  had  now  leaped  at  a  bound  into  pub- 
lic notice.  And,  coincidently,  as  we  have  already 
seen  —  an  event  of  great  significance  —  the  power- 
ful Standard  Oil  capitalists  interested  themselves 
in  Wall  Street  affairs. 

Too  much  credit  cannot  be  given  to  the  men  who 
carried  out  this  reorganization  of  the  Union  Pacific 
Railroad.  In  the  first  place,  they  paid  to  the 


98  THE  MASTERS  OF  CAPITAL 

Federal  Government  over  forty-five  million  dollars 
in  cash  on  a  bankrupt  railroad  —  all  the  principal 
and  full  interest  at  six  per  cent  on  the  Union 
Pacific  debt,  which  had  accrued  for  thirty  years. 
Then  they  put  the  bonds  and  preferred  stock  of 
the  reorganized  road  on  a  straight  four  per  cent 
basis;  and  finally  after  these  prudential  measures, 
they  began  to  spend  money  by  the  tens  and  hun- 
dreds of  millions  upon  this  ramshackle  property 
running  across  the  "Great  American  Desert." 

In  all  these  operations  Harriman  was  the  master- 
ful leader.  Fortune  played  into  his  hands.  For 
the  first  time  in  years  the  arid  farming  sections  of 
the  West  had  copious  rains  and  fine  crops.  The 
Spanish-American  War  resulted  in  American  oc- 
cupation of  the  Philippines;  and  the  Union  Pacific 
got  a  great  business  from  these  new  possessions. 
Harriman  not  only  spent  money  but  he  spent  it 
quickly,  accomplishing  in  two  years'  work  what 
had  been  estimated  to  take  five.  And  he  was  reap- 
ing the  fruit  of  his  enterprise.  In  three  years,  under 
his  direction,  the  system  expanded  from  less  than 
two  thousand  miles  to  over  fifteen  thousand.  The 
old  branches  running  up  into  the  Oregon  country 
were  all  reabsorbed.  After  the  death  of  Collis  P. 
Huntington  in  1900,  Harriman  bought  in  forty-five 


HARRIMAN  AND  HILL  99 

per  cent  of  the  Southern  Pacific  Company  stock, 
principally  from  the  Huntington  estate. 

But  now,  just  about  the  time  that  the  great 
steel  merger  was  being  carried  through,  when  the 
big  banking  interests  of  Wall  Street  were  every- 
where hitching  themselves  to  the  Morgan  star, 
Harriman's  gigantic  railroad  plans  came  into  vio- 
lent collision  with  the  equally  gigantic  plans  of 
James  J.  Hill.  Until  a  short  time  before  this,  Hill 
had  not  been  looked  upon  as  a  big  operator  in  Wall 
Street.  He  had  won  fame  as  the  builder  and  suc- 
cessful manager  of  the  Great  Northern  Railway 
system,  but  he  had  not  been  directly  involved  in 
the  large  Wall  Street  deals.  At  first,  as  the  Great 
Northern  emerged  from  the  panic  of  1893,  the 
firm  of  Kuhn,  Loeb  and  Company  had  done  most 
of  the  Great  Northern  financing  in  New  York. 
But  after  the  reorganization  of  the  Northern  Pa- 
cific property  by  Morgan  in  1897,  Hill  and  Mor- 
gan began  to  work  closer  to  each  other.  Hill  had 
acquired  a  substantial  stock  interest  in  the  Chase 
National  Bank,  one  of  New  York  City's  old  and 
strong  institutions,  while  Morgan  began  to  add  to 
his  interest  in  the  First  National  Bank,  of  which 
George  F.  Baker  was  president.  Baker  and  his 
associates  at  this  time  also  acquired  a  large  interest 


100  THE  MASTERS  OF  CAPITAL 

in  the  Chase  National  Bank,  and  the  two  institu- 
tions became  definitely  allied  in  interest.  Then, 
as  a  natural  step,  James  J.  Hill  acquired  an  im- 
portant interest  in  the  First  National  Bank.  A 
little  later,  Hill  acquired  a  large  part  of  the  Mor- 
gan interest  in  the  newly  reorganized  Northern 
Pacific  property.  This  move  brought  Hill  defi- 
nitely into  the  group  of  Morgan  financiers,  while 
Harriman  was  still  closely  associated  with  the 
Rockefeller  and  City  Bank  interests. 

Hill  was  now  the  controlling  power  in  both 
the  Great  Northern  and  the  Northern  Pacific  sys- 
tems and  was  becoming  more  and  more  of  a  com- 
petitor of  Harriman.  The  latter  discerned  the  dan- 
gers ahead  and  began  to  extend  the  Union  Pacific 
branch  lines  up  into  the  Oregon  district.  But  Hill 
was  looking  to  the  East.  Neither  of  his  roads 
controlled  a  connection  to  Chicago,  the  Northern 
Pacific  ending  at  St.  Paul,  and  the  Great  Northern 
at  Duluth.  The  Union  Pacific,  on  the  other  hand, 
had  a  close  alliance  with  the  Illinois  Central, 
which  entered  Chicago,  and  maintained  traffic 
connections  with  other  lines.  At  this  juncture 
Hill  decided  to  have  the  Northern  Pacific  buy  the 
stock  control  of  the  great  Chicago,  Burlington  and 
Quincy  system.  When  this  move  was  announced, 


HARR1MAN  AND  HILL  101 

it  threw  the  Harriman  people  into  confusion,  for 
it  meant  that  the  Union  Pacific  would  have  a  di- 
rect competitor  a  third  of  the  way  to  the  Pacific. 
While  the  Burlington  line  was  bought  primarily 
for  the  sake  of  its  lines  extending  from  St.  Paul 
southward  to  Chicago,  yet  the  system  had  also  a 
lucrative  line  running  to  Denver  and  far  beyond 
into  Wyoming. 

Harriman  now  attempted  to  bargain  with  Hill 
and  to  induce  him  to  let  the  Union  Pacific  join  in 
the  Burlington  purchase  and  thus  tie  up  all  the 
western  systems  in  a  common  monopoly.  But  Hill 
refused.  Then,  without  the  slightest  hesitation, 
Harriman  quietly  began  to  buy  up  the  control  of 
the  Northern  Pacific  in  the  open  stock  market. 
In  this  way  he  hoped  to  checkmate  Hill,  as  the 
Northern  Pacific  (jointly  with  the  Great  Northern) 
had  been  made  the  instrument  to  carry  the  Bur- 
lington stock  and  Harriman  reasoned  that,  while 
a  majority  of  Great  Northern  stock  was  doubtless 
locked  up  in  the  strong  boxes  of  Hill  and  his  friends, 
only  a  substantial  minority  of  the  Northern  Pacific 
stock  was  so  held. 

To  buy  up  the  control  of  such  a  property  meant 
the  use  of  anywhere  from  $80,000,000  to  $100,000,- 
000  in  cash.  But  Harriman  knew  where  he  could 


102  THE  MASTERS  OF  CAPITAL 

lay  his  hands  on  the  money.  Already  the  Union 
Pacific  had  a  heavy  balance  in  its  treasury;  it  had, 
besides,  about  $60,000,000  of  unused  bonds  which 
Harriman  had  the  right  to  issue;  and  behind  him 
were  the  huge  cash  resources  of  Kuhn,  Loeb  and 
Company  and  the  City  Bank,  with  the  Standard 
Oil  alliance. 

Harriman  had  gone  far  on  the  way  to  controlling 
the  Northern  Pacific  before  the  fact  was  known  to 
J.  P.  Morgan  and  Company.  Morgan  had  gone  on 
his  usual  spring  and  summer  trip  to  Europe,  and 
was  on  the  ocean  when  the  storm  broke.  Coster, 
his  chief  lieutenant,  had  died  the  year  before. 
The  Morgan  firm  was  in  charge  of  Robert  Bacon, 
a  fine,  upstanding  young  man,  handsome  as  a  Greek 
god,  but  not  of  the  Morgan  caliber.  He  had  been 
called  to  the  Morgan  firm  a  few  years  before  from 
a  brokerage  house  in  Boston;  but  he  was  not  the 
best  substitute  for  Pierpont  Morgan  in  a  great 
financial  crisis. 

On  the  1st  of  April,  1901,  Morgan  and  the  Hill 
people  together  held  between  $35,000,000  and 
$40,000,000  of  the  Northern  Pacific  stock  out  of  a 
total  of  $155,000,000.  They  had  paid  an  average 
of  about  sixteen  for  this  stock  only  two  or  three 
years  before  and,  seeing  it  rise  beyond  par,  they 


HARRIMAN  AND  HILL  103 

were  tempted  to  sell  some  of  their  holdings.  On 
the  1st  of  May  they  held  only  $26,000,000  worth. 
Then  Harriman  announced  that  he  had  bought 
an  actual  majority  of  the  Northern  Pacific  stock. 
And  he  had;  but  there  was  a  loophole  which  Harri- 
man had  overlooked.  His  purchases  were  in  both 
common  and  preferred  stock,  but  the  charter  of 
the  company  provided  that  the  preferred  stock 
could  be  retired  at  the  will  of  the  directors,  thus 
leaving  the  voting  power  entirely  in  the  common 
stock.  It  soon  appeared  that  Harriman  had  not 
acquired  enough  common  stock  to  give  him  con- 
trol. So  Hill  and  his  friends,  with  the  Morgan 
house  and  its  powerful  connections,  rallied  and 
employed  James  R.  Keene,  the  famous  stock  mar- 
ket manipulator,  to  buy  a  majority  of  the  North- 
ern Pacific  stock  for  them.  Between  the  3d 
and  the  7th  of  May  over  $15,000,000  worth  was 
bought  —  enough,  they  thought,  to  give  them  an 
actual  majority. 

But  at  the  same  time  Harriman  also  was  buy- 
ing; and  by  the  9th  of  May  both  parties  claimed 
to  have  a  majority.  The  stock  had  been  "cor- 
nered"; the  price  soared  and  soared;  at  ten  o'clock 
on  the  9th  of  May  it  sold  around  $350  a  share;  one 
hour  later  it  was  quoted  at  $1000  a  share.  Wall 


104  THE  MASTERS  OF  CAPITAL 

Street  plunged  into  a  panic;  stocks  of  every  char- 
acter dropped  with  a  thud;  it  was  plain  that,  un- 
less something  was  done,  every  broker  and  every 
banker  in  Wall  Street  would  fail  by  nightfall.  So 
the  two  contestants  had  to  suspend  hostilities  in 
order  to  save  the  financial  world  they  lived  in.  A 
truce  was  signed  pending  Morgan's  return  to  New 
York  in  July.  In  November,  Bacon  retired,  broken 
in  health  by  the  gigantic  strain  of  the  Morgan  busi- 
ness, just  as  Coster  before  him  had  been.  But  his 
place  was  more  than  filled  by  George  W.  Perkins. 
In  the  formation  of  the  Northern  Securities 
Company  in  the  fall  of  1901,  another  important 
link  was  forged  which  served  to  weld  the  rival  finan- 
cial groups  of  Wall  Street  together.  The  North- 
ern Securities  Company  was  a  holding  corporation 
with  $400,000,000  capital,  which  was  formed  to  ac- 
quire by  exchange  of  stock  all  the  capital  of  the 
Northern  Pacific  Railway  and  a  majority  of  the 
capital  of  the  Great  Northern,  thus  insuring  control 
of  the  Burlington,  nearly  all  the  stock  of  which  had 
been  acquired  by  these  companies.  As  the  Union 
Pacific  and  Harriman  and  Standard  Oil  interests 
had  bought  a  great  block  of  Northern  Pacific  stock, 
this  agreement  meant  that  they  would  control  sub- 
stantially half  of  the  Northern  Securities  Company 


HARRIMAN  AND  HILL  105 

stock.  Thus,  by  a  gigantic  stroke,  railway  com- 
petition in  the  vast  region  west  of  the  Mississippi 
was  eliminated,  and  a  combination  of  capital, 
far  greater  than  that  of  the  Steel  Trust,  was 
formed.  The  Harriman  properties  now  embraced 
the  Southern  Pacific  system,  with  its  eleven  thou- 
sand miles  of  railroad  radiating  throughout  the 
entire  Southwest,  and  the  Illinois  Central,  with  its 
five  thousand  miles  extending  down  the  Missis- 
sippi Valley  to  the  Gulf.  The  Hill  properties,  now 
jointly  controlled  and  operated  by  Hill  and  Harri- 
man, included  over  fifteen  thousand  miles  of  lines 
radiating  throughout  the  entire  rich  region  north 
and  northwest  of  Chicago  and  extending  through 
to  the  Pacific  by  two  distinct  routes. 

But  this  alliance  of  western  properties  by  no 
means  represented  all  or  nearly  all  the  railroad 
power  of  either  Harriman  or  Morgan.  Harriman 
had.  caused  the  Union  Pacific  to  acquire  important 
interests  in  the  New  York  Central,  the  St.  Paul, 
the  Atchison,  and  the  Chicago  and  North- Western, 
following  out  the  "community  of  interest"  theory 
of  which  he  was  such  a  strong  advocate.  Morgan, 
on  his  part,  was  just  as  firmly  as  ever  in  control  of 
his  eastern  properties,  the  Erie  and  the  Southern, 
and  had  important  influence  in  the  management  of 


106  THE  MASTERS  OF  CAPITAL 

the  Reading,  the  Lehigh  Valley,  the  Baltimore  and 
Ohio  and,  of  course,  the  entire  Vanderbilt  lines. 
Interlocking  directorates  were  becoming  the  vogue 
in  the  entire  railroad  world.  The  powerful  Penn- 
sylvania Railroad,  under  the  remarkable  and  force- 
ful personality  of  Alexander  J.  Cassatt,  had  pushed 
the  "community  of  interest"  idea  aggressively, 
and  its  representatives  were  on  the  boards  of  di- 
rectors of  all  of  its  competing  and  many  of  its  con- 
necting lines.  In  nearly  all  directions,  the  rail- 
road systems  of  the  country  had  now  been  welded 
together  under  the  financial  control  of  practically 
one  powerful  interest. 

There  was,  however,  one  loophole  left  open.  The 
lucrative  Louisville  and  Nashville  Railroad  was 
still  outside  the  breastworks,  when  John  W.  Gates 
—  who,  since  he  had  sold  out  his  American  Steel 
and  Wire  Company  to  the  Trust  in  1901,  had  be- 
come a  notorious  stock-market  "plunger" — #nd 
Edwin  Hawley  joined  forces  in  1903  and  bought 
a  majority  of  the  Louisville  and  Nashville  stock. 
Hawley  had  been  one  of  the  lieutenants  of  Collis 
P.  Huntington,  after  whose  death  and  the  sale 
of  the  Southern  Pacific  to  Harriman  he  had  be- 
come a  free  lance.  He  bought  small  railroads  for 
the  purpose  of  selling  them  out  at  a  profit,  just  as  a 


HARRIMAN  AND  HILL  107 

smaller  man  would  buy  a  block  of  stock  for  the 
same  purpose.  He  and  Gates  formed  a  strong  com- 
bination; but  their  reputation  was  that  of  manip- 
ulators; and  it  was  feared  that  they  would  wreck 
the  solid  old  Louisville  and  Nashville  property 
hi  short  order  by  unsound  financing  and  unprin- 
cipled manipulation.  In  fact,  this  was  their  inten- 
tion. They  worked  up  an  enormous  speculation 
in  the  stock,  caught  certain  large  insiders  short, 
and  threatened  to  start  another  "corner"  simi- 
lar to  that  in  the  Northern  Pacific.  To  prevent  the 
recurrence  of  such  a  disaster,  Morgan  stepped  in 
and  took  the  Louisville  and  Nashville  off  their 
hands  at  their  own  price.  Later,  Morgan  turned 
the  control  of  this  railroad  property  over  to  the 
Atlantic  Coast  Line,  which  had  been  welded  to- 
gether by  Henry  Walters  and  was -being  operated 
in  harmony  with  the  Morgan  interests  along  the 
South  Atlantic  seaboard. 

There  was  now  but  one  large  system  of  American 
railroads  that  actually  escaped  the  control  of  con- 
servative bankers  of  the  Morgan  and  Standard 
Oil  type,  with  their  "community  of  interest"  for- 
mula. This  was  the  Chicago,  Rock  Island  and 
Pacific.  In  1902,  their  pockets  bulging  with  the 
millions  acquired  in  the  big  steel  merger,  the  Moore 


108  THE  MASTERS  OF  CAPITAL 

brothers,  with  Daniel  G.  Reid,  and  others,  formed 
a  syndicate  and  bought  the  control  of  this  property. 
They  immediately  loaded  it  up  with  several  hun- 
dred millions  of  watered  capital,  and  then  so  fixed 
the  voting  power  that  they  could  sell  practically 
all  of  it  to  the  public  and  yet  still  retain  control 
of  the  property.  Thus,  the  Rock  Island  system 
became  simply  a  football  for  Wall  Street  gamblers; 
its  roadbed  and  rolling  stock  were  neglected;  the 
road  was  "skinned"  year  after  year  to  pay  divi- 
dends; and  an  extravagant  policy  of  expansion 
was  pursued  which  in  the  course  of  time  forced 
the  entire  system  into  bankruptcy,  and  the  flimsy 
structure  collapsed  like  a  house  of  cards. 


CHAPTER  VII 

THE  APEX  OP  "HIGH  FINANCE" 

IN  1903  the  United  Steel  Corporation  failed  to  earn 
its  dividends,  its  great  issue  of  common  stock  fell 
to  a  few  dollars  a  share,  and  people  began  to  think 
that  Morgan  was  no  wizard  after  all.  Carnegie, 
the  retired  and  intrenched  multimillionaire,  sat 
back  and  laughed;  Harriman,  the  enemy  of  Mor- 
gan, gloated  over  the  fall  of  his  rival ;  the  Standard 
Oil  magnates,  always  jealous  of  the  Morgan  power, 
said  little  but  watched  and  waited.  But  while  the 
fickle  public  cried  calamity,  Morgan  kept  on  being 
a  "bull."  He  knew  that  the  ebb  was  temporary; 
that  the  tide  would  soon  turn.  He  urged  his  clients 
to  buy  steel  and  other  good  industrials.  The  de- 
cision of  the  Supreme  Court  in  1904  ordering  the 
dissolution  of  the  Northern  Securities  Company 
caused  a  shiver  in  the  framework  of  Morgan's  gi- 
gantic structure.  But  it  was  only  a  shiver.  The 
tide  did  turn,  and  big  business  went  merrily  on 

109 


110  THE  MASTERS  OF  CAPITAL 

until  the  storm  broke  in  1907.  Steel  stocks 
rose  above  their  original  figures,  and  the  house 
of  Morgan  regained  its  prestige  and  added  to  its 
financial  strength. 

During  these  years  Morgan  formed  the  great 
shipping  combination  known  as  the  International 
Mercantile  Marine  Company,  which  absorbed  the 
White  Star  Line,  the  American  Line,  the  Red  Star 
Line,  the  Leyland  Line,  and  many  other  trans- 
atlantic companies.  The  idea  of  this  combination 
was  to  eliminate  the  cutthroat  competition  which 
then  existed  in  the  transatlantic  trade  in  freight 
and  passenger  rates.  The  leading  lines  between 
New  York  and  England,  which  included  the  Cu- 
nard  Line,  the  White  Star,  and  the  American  Line, 
had  suffered  during  the  few  previous  years  through 
competitive  conditions  just  as  the  trunk  line  rail- 
roads had  suffered  for  more  than  a  decade  prior  to 
the  period  when  the  Morgan  idea  of  "combina- 
tions" and  "community  of  interest"  had  been 
so  widely  introduced.  It  was  felt  that  the  same 
methods  of  combination  in  the  ocean  carrying 
trade  might  have  equally  beneficial  results. 

But  the  organization  of  the  International  Mer- 
cantile Marine  Company  proved  to  be  one  of  Mor- 
gan's business  mistakes  —  until  the  unprecedented 


THE  APEX  OF  "HIGH  FINANCE"       111 

demand  for  shipping  in  the  Great  War  resulted 
in  large  earnings.  The  vital  fact  was  apparently 
belittled  or  overlooked  that  a  combination  of  car- 
riers on  the  high  seas  cannot  be  welded  into  a 
monopoly  in  the  same  way  that  a  combination  of 
railroads  can  be.  The  ocean  is  free  to  all  comers, 
while  a  railway  right  of  way  is  in  its  very  nature 
exclusive  and  grows  more  valuable  as  the  territo- 
ry covered  increases  in  density  of  population  and 
wealth.  It  would  be  practically  impossible,  be- 
cause of  the  stupendous  costs,  for  a  direct  competi- 
tor to  be  built  today  paralleling  the  Pennsylvania 
Railroad  between  New  York  and  Pittsburgh;  but 
it  would  be  simple  enough  for  an  organisation  of 
capital  to  establish  an  entirely  new  line  of  steam- 
ships between  New  York  and  Liverpool. 

This  was  but  one  of  the  facts  which  were  over- 
looked by  the  promoters  of  the  steamship  combina- 
tion. The  competing  lines  controlled  in  England 
and  Germany  were  all  the  beneficiaries  of  large 
government  subsidies,  whereas  the  new  Morgan 
combination,  being  under  American  control  and 
financed  by  American  capital,  could  not  enjoy 
these  benefits.  Moreover,  as  soon  as  the  new 
combination  began  to  compete  aggressively  with 
the  Cunard  and  German  lines,  both  the  English 


112  THE  MASTERS  OF  CAPITAL 

and  German  Governments  came  to  the  rescue  with 
further  large  subsidies  and  benefits.  The  Cunard 
Line  was  able  to  make  an  arrangement  with  the 
British  Government  whereby  the  latter  advanced 
money  at  two  and  one-half  per  cent  for  the  con- 
struction of  new  liners  of  mammoth  capacity,  such 
as  the  Lusitania  and  the  Mauretania. 

A  more  successful  flotation  by  the  Morgan  firm 
was  that  of  the  International  Harvester  Company. 
This  was  a  gigantic  combination  of  manufacturers 
of  harvesting  machinery  and  included  the  larger 
plants  in  the  United  States  and  also  many  of  those 
in  Europe.  Its  capitalization  was  large,  but  it  dis- 
tinctly Stabilized  business  conditions  in  this  line 
of  industry  and  prospered  notably  from  the  very 
start.  Credit  was  especially  due  to  George  W. 
Perkins,  Morgan's  young  partner,  for  forming  this 
new  combination. 

During  a  long  period  the  Morgan  firm  had 
been  closely  identified  with  the  General  Electric 
Company,  a  great  manufacturing  concern  which 
had  been  building  up  a  world-wide  industry.  But 
the  General  Electric  Company  was  now  becoming 
more  than  a  mere  manufacturing  concern.  With 
its  large  capital  and  high  credit  it  was  steadily 
going  into  the  business  of  developing  public  utility 


THE  APEX  OF  "HIGH  FINANCE"       113 

operating  companies.  The  old  North  American 
Company,  which  had  originated  as  the  Oregon 
and  Transcontinental  Company  many  years  before 
and  had  been  the  holding  corporation  for  the  in- 
terests of  Henry  Villard  in  connection  with  the 
Northern  Pacific  and  certain  Oregon  railways,  had 
now  been  revamped  as  a  public  utility  holding 
company  and  had  gradually  acquired  control  of, 
or  large  interests  in  the  street  railways  and  light- 
ing companies  of  St.  Louis,  the  Milwaukee  public 
utilities,  and  the  Detroit  Edison  Company. 

But  perhaps  the  most  striking  development  of 
this  time  was  the  further  unification  of  railroad 
control.  After  the  Supreme  Court  decision  dis- 
solving the  Northern  Securities  Company  was 
handed  down  in  1904,  the  stocks  of  the  Great 
Northern  and  Northern  Pacific  railways  which 
had  been  acquired  by  this  holding  company  were 
returned  to  their  holders.  The  Union  Pacific 
Railway  received  into  its  treasury  an  enormous 
amount  of  both  Great  Northern  and  Northern 
Pacific  stock.  At  this  time,  these  stocks  were  of 
tremendous  market  value.  Both  roads  showed 
large  earnings  and  were  paying  liberal  dividends,  be- 
sides cutting  "melons"  by  dividing  surplus  prof- 
its in  one  form  or  another.  The  stock  market  was 

8 


114  THE  MASTERS  OF  CAPITAL 

booming,  and  the  quotations  in  these  stocks  soared 
to  unheard-of  heights.  Great  Northern  stock  sold 
in  1906  as  high  as  $340  a  share  and  Northern  Pa- 
cific at  about  $230.  The  Union  Pacific  suddenly 
found  itself  rich  beyond  the  dreams  of  avarice;  its 
treasury  was  overflowing  with  valuable  securities. 
And  when,  after  this  dissolution,  the  Harriman 
and  Hill  interests  reached  a  definite  agreement  on 
matters  of  policy  and  division  of  territory  by  carry- 
ing the  "community  of  interest"  idea  to  its  logical 
conclusion,  there  was  no  further  need  of  the  Union 
Pacific  to  retain  control  of  these  large  amounts  of 
stock.  So  Harriman  decided  to  dispose  of  them. 
These  sales,  which  were  spread  over  a  considerable 
period,  brought  an  immense  amount  of  cash  into 
the  treasury  of  the  company  and  resulted  in  a 
total  profit  to  the  Union  Pacific  of  more  than  fifty 
millions  of  dollars. 

Thus  the  Union  Pacific  Railway  had  become  a 
veritable  storehouse  of  cash,  in  fact,  a  bank  of 
enormous  resources.  But  Harriman  had  no  inten- 
tion of  allowing  the  railroad  to  remain  a  bank;  he 
had  more  ambitious  plans.  The  Supreme  Court 
decision,  while  preventing  the  practical  merger  of 
competing  lines,  said  nothing  about  the  control  of 
connecting  lines.  So  the  Union  Pacific  cash  was 


THE  APEX  OF  "  HIGH  FINANCE  "       115 

immediately  employed  in  adding  to  the  Union  Pa- 
cific's interest  in  connecting  systems .  It  had  always 
been  Harriman's  ambition  to  control  an  ocean  to 
ocean  railroad,  and  he  now  began  to  purchase  in 
the  interest  of  the  Union  Pacific  great  blocks  of 
stock  in  the  Baltimore  and  Ohio  Railroad,  be- 
sides adding  heavily  to  that  already  owned  by 
the  Union  Pacific  in  the  Illinois  Central.  By  the 
early  part  of  1906,  the  Baltimore  and  Ohio  was 
practically  an  eastern  arm  of  the  Union  Pacific 
Railway.  And  inasmuch  as  the  Baltimore  and 
Ohio  already  owned  practically  a  dominating  in- 
terest in  the  Reading  Company,  with  the  control 
of  the  anthracite  fields,  and  the  Reading  controlled 
the  Central  Railroad  of  New  Jersey,  with  its  en- 
trance into  the  New  York  City  district,  the  Union 
Pacific  now  became  a  network  of  railway  lines 
extending  from  ocean  to  ocean. 

In  short,  the  general  tendency  was  for  all  the 
American  railroads  to  become  more  and  more  close- 
ly knit  together  in  policy  and  interest.  The  St. 
Paul  in  these  years  began  to  develop  its  west- 
ern extension,  and  the  Rockefeller  interests,  which 
were  so  closely  allied  with  the  Harriman  railroad 
financiers,  had  complete  control  of  the  St.  Paul. 
The  Gould  properties  were  being  linked  into  one 


116  THE  MASTERS  OF  CAPITAL 

harmonious  whole,  and  a  plan  was  under  way  for 
a  Gould  transcontinental  line  also  stretching  from 
ocean  to  ocean.  The  Western  Maryland  system 
was  acquired  by  the  Goulds,  with  Rockefeller  aid, 
and  it  looked  as  though  a  great  system  would  soon 
be  built  up,  side  by  side  with  the  Harriman  lines, 
but  in  close  control  and  with  the  maintenance  of 
harmonious  relations. 

The  Hill  and  Morgan  properties  of  course  ex- 
hibited this  same  tendency  towards  greater  har- 
mony and  concentration.  Hill's  lines  radiated 
throughout  the  Northwest  but  worked  in  har- 
mony with  both  the  Harriman  and  the  Rockefeller 
interests.  The  Atlantic  Coast  Line,  with  the  great 
Louisville  and  Nashville  system,  under  the  man- 
agement of  Henry  Walters  and  under  the  partial 
control  of  Morgan  interests,  operated  in  complete 
harmony  with  the  Southern  Railway  system  on  the 
one  hand  and  with  the  Illinois  Central  on  the  other. 
Morgan  took  care  that  his  Erie  system  maintained 
favorable  and  harmonious  relations  with  the  great 
Vanderbilt  lines,  while  the  Pennsylvania  system, 
under  the  guidance  of  that  master  hand,  Alexander 
J.  Cassatt,  worked  in  complete  harmony  with  all 
the  other  large  railroad  interests. 

The  intercorporate  relationships  of  the  railways 


THE  APEX  OF  "HIGH  FINANCE"       117 

reached  their  highest  point  before  the  panic  of 
1907.  By  the  end  of  1906,  we  find  that  of  a  to- 
tal railroad  stock  capitalization  of  about  twelve 
billions  of  dollars,  more  than  one-third  was  owned 
by  the  railroads  themselves.  In  the  cases  of  com- 
peting or  parallel  systems,  minority  interests  of 
sufficient  amount  were  held  to  create  a  substantial 
if  not  a  dominating  interest;  but  in  the  case  of 
non-competing  lines,  or  connecting  lines,  majori- 
ty control  was  often  effected.  The  latter  was  the 
case  in  New  England,  where  the  New  York,  New 
Haven  and  Hartford  system,  under  Morgan  in- 
fluence, had  acquired  complete  control  of  prac- 
tically all  the  means  of  transportation,  including 
the  many  coastwise  steamship  lines. 

This  remarkable  welding  together  of  great  cor- 
porate interests  could  not,  of  course,  have  been 
accomplished  if  the  "masters  of  capital"  in  Wall 
Street  had  not  themselves  during  the  same  period 
become  more  closely  allied.  The  rivalry  of  inter- 
ests which  was  so  characteristic  during  the  reorgan- 
ization period  a  few  years  before  had  very  largely 
disappeared.  Although  the  two  great  groups  of 
financiers,  represented  on  the  one  hand  by  Morgan 
and  his  allies  and  on  the  other  by  the  Standard  Oil 
forces,  were  still  distinguishable,  they  were  now 


118  THE  MASTERS  OF  CAPITAL 

working  in  practical  harmony  on  the  basis  of  a  sort 
of  mutual  "community  of  interest"  of  their  own. 
Thus  the  control  of  capital  and  credit  through 
banking  resources  tended  to  become  concentrated 
in  the  hands  of  fewer  and  fewer  men. 

The  machinery  for  the  control  of  credit  had 
become  steadily  more  effective  since  the  days  of 
the  Steel  Trust  merger.  Two  groups  of  banks, 
partially  allied  but  still  independent,  had  been 
reaching  out  through  the  entire  country.  The 
National  City  Bank,  now  under  the  management 
of  Frank  A.  Vanderlip,  James  Stillman  having 
practically  retired,  had  grown  tremendously  in 
power  and  with  unusual  rapidity.  It  had  formed 
connections  with  large  institutions  in  various  cities 
of  the  country  and  had  brought  under  its  control 
several  great  trust  companies.  The  growth  of  the 
Morgan  banks  and  trust  companies  during  this 
period  was  no  less  notable. 

In  the  same  period  began  a  contest  for  the  con- 
trol of  life  insurance  assets.  In  earlier  days  the  life 
insurance  business  had  occupied  a  modest  place 
in  the  American  financial  world.  The  old,  solid 
companies  had  grown  steadily  and  quietly  year  by 
year,  increasing  their  patronage  and  adding  to 
their  assets  in  a  staid,  conservative  way.  But 


THE  APEX  OF  "HIGH  FINANCE"       119 

they  were  generally  looked  upon  as  a  thing  apart, 
so  far  as  banking  connections  or  general  financing 
were  concerned.  The  old  Equitable  Life  Assur- 
ance Society,  although  near  the  Wall  Street  dis- 
trict, was  as  distinct  from  Wall  Street  influences 
as  though  it  had  been  located  in  Hartford  or  in 
Philadelphia;  and  the  same  was  practically  true 
of  the  Mutual  Life  Insurance  Company  and  the 
New  York  Life  Insurance  Company.  The  invest- 
ments of  these  large  and  growing  companies,  as 
well  as  those  of  a  myriad  of  smaller  ones,  had  from 
time  out  of  mind  been  confined  to  government 
and  municipal  bonds  and  the  highest  grade  of  rail- 
road securities.  Each  year  had  seen  the  surpluses 
of  these  companies  grow,  but  as  a  matter  of  course 
their  large  cash  resources  were  looked  upon  as  un- 
available for  ordinary  financial  purposes.  While 
the  laws  regulating  the  investment  of  life  insurance 
funds  were  far  more  liberal  than  those  pertaining 
to  the  investment  of  savings  bank  funds,  yet  Wall 
Street  did  not  regard  the  one  as  any  more  liquid 
or  available  than  the  other  for  its  own  uses.  As 
late  as  1889  it  appears  that  very  little  attention 
had  been  paid  to  the  possibility  of  making  use,  in 
financial  schemes,  of  the  large  liquid  assets  of  these 
great  companies. 


120  THE  MASTERS  OF  CAPITAL 

But  in  the  early  nineties  the  trust  company  move- 
ment began  to  get  vigorously  under  way.  Trust 
companies,  formed  as  they  were  under  unusually 
liberal  banking  laws,  could  not  only  compete  with 
the  ordinary  state  banks  and  the  national  banks 
in  doing  a  straight  banking  business  —  receiving 
deposits,  discounting  notes,  and  making  loans  on 
collateral  —  but  were  fully  empowered  to  do  many 
other  lucrative  things.  They  were  perfectly  free, 
for  example,  to  "underwrite"  financial  schemes 
and  to  take  large  interests  in  promotions  or  finan- 
cial enterprises  of  a  more  or  less  speculative  nature. 
Such  underwritings  or  promotions  frequently  yield- 
ed fabulous  profits,  and  it  was  quickly  seen  that  the 
stock  of  a  modern  trust  company  was  likely  to  pay 
larger  dividends  than  that  of  a  bank,  which  operated 
under  rigidly  restrictive  laws. 

These  possibilities  for  lucrative  profits  began 
to  be  more  fully  demonstrated  as  the  readjust- 
ment and  reorganization  period  set  in  about  1893. 
Up  to  that  time  trust  companies  had  made  a  special 
feature  of  acting  as  fiscal  and  financial  agents, 
paying  coupons,  dividends,  and  performing  the 
general  work  of  trusteeship  for  both  corporate 
and  individual  interests.  But  now  they  began  to 
be  the  headquarters  for  bondholders'  committees 


THE  APEX  OF  "HIGH  FINANCE"       121 

and  the  agencies  for  reorganization  committees  and 
the  like.  Soon  a  further  step  was  taken;  abandon- 
ing the  mere  role  of  trustee,  they  began  to  be  re- 
organizers  and  financiers  of  corporations  directly. 
Profits  flowed  in,  the  stocks  of  the  trust  companies 
began  to  soar,  and  trust  company  dividends  ranged 
far  higher  than  did  old-line  bank  dividends.  An 
investment  in  the  stock  of  a  large  Wall  Street 
trust  company  became  far  more  lucrative  than  an 
investment  in  a  first  class  bank  of  the  old  style. 
So  trust  companies  began  to  be  formed  with 
great  rapidity. 

But  to  form  large  companies  with  great  re- 
sources and  substantial  reserves  required  much 
money.  They  were  a  new  thing,  and  the  type  of 
individual  investor  who  was  perfectly  willing  to 
put  money  into  a  national  or  state  bank  was  in- 
clined to  hesitate  before  embarking  on  this  new  en- 
terprise. But  money  must  be  got  somewhere;  so  the 
shrewd  minds  identified  with  or  attracted  by  the 
possibilities  of  the  movement  began  to  search  for 
untouched  resources  of  some  kind.  Some  success 
was  achieved  in  getting  Standard  Oil  money  into 
the  field,  but  only  to  a  limited  extent.  For  a  while  it 
looked  as  though  the  trust  company  business  would 
have  to  take  the  usual  course  of  any  new  business 


122  THE  MASTERS  OF  CAPITAL 

with  money-making  ideas  and  prove  its  stability 
with  the  lapse  of  time  before  it  could  hope  to  take 
a  permanent  place  in  American  financial  affairs. 

Suddenly  a  new  and  unexpected  source  of  capital 
opened.  Identified  with  certain  of  the  large  life 
insurance  companies  of  New  York,  either  as  presi- 
dents or  managers,  were  a  number  of  men  of  the 
purely  financial  type,  men  who  were  more  or  less 
involved  in  Wall  Street  interests  and  enterprises. 
These  men,  with  their  swelling  insurance  assets, 
were  constantly  looking  for  investments  for  the 
surplus  funds  of  their  companies;  and  they  were 
not,  as  a  rule,  averse  to  making  private  fortunes 
for  themselves.  Though  the  life  insurance  laws 
restricted  them  to  some  extent  in  the  use  of  the 
policyholders'  money,  so  that  they  could  not,  as  a 
private  banker  might,  make  use  of  this  money  in 
any  really  free  and  speculative  way,  it  was  per- 
fectly legitimate  for  a  life  insurance  company  to 
invest  its  funds  in  any  company  operating  under 
the  banking  laws.  There  was  therefore  nothing  to 
prevent  the  Mutual  Life  or  the  Equitable  Life 
from  holding  the  stock  of  a  trust  company.  And 
as  the  value  of  the  capital  stock  of  a  bank  or  trust 
company  in  those  days  depended  largely  upon  the 
character  of  its  management  or  the  personnel  of  its 


THE  APEX  OF  "HIGH  FINANCE"       123 

board  of  directors,  it  was  soon  found  that  a  trust 
company  which  was  openly  identified  with  a  large 
and  powerful  insurance  concern  would  be  assured 
of  success. 

Life  insurance  money  thus  began  to  go  into  trust 
companies,  and  officers  and  directors  of  life  insur- 
ance companies  began  to  take  conspicuous  places 
as  directors  of  trust  companies.  And  in  addition, 
these  new  directors  began  to  grow  rich;  and  they 
grew  rich  in  many  cases  where  at  the  start  they  had 
no  capital  whatever.  In  forming  a  new  trust  com- 
pany or  in  enlarging  an  old  one  by  the  issue  of 
new  stock,  they  not  only  would  have  their  insur- 
ance company  subscribe  to  a  majority  of  the  stock 
but  would  themselves  subscribe  to  a  minority  on 
the  same  terms,  and  then  deposit  their  own  stock 
as  collateral  for  a  loan  which  they  would  obtain 
from  their  own  insurance  company.  It  would 
not  in  all  cases  be  necessary  for  them  to  deposit 
any  cash  "margin"  in  the  loan,  for  almost  invari- 
ably the  stock  would  be  sold  to  them,  as  to  the 
insurance  company,  at  a  figure  considerably  below 
its  market  value. 

At  that  time  there  were  no  restrictive  laws 
which  forbade  an  officer  of  a  corporation  to  borrow 
money  from  his  own  company  on  collateral,  and 


124  THE  MASTERS  OF  CAPITAL 

the  president  or  director  of  an  insurance  company 
was  perfectly  free  to  make  use  of  the  funds  of  his 
own  company  provided  he  deposited  necessary  se- 
curity. And  as  he  was  himself  the  authority  who 
scrutinized  the  collateral,  it  will  be  seen  that  his 
path  was  generally  a  very  easy  one. 

During  the  period  from  about  1890  to  the  open- 
ing of  the  new  century,  this  flow  of  life  insurance 
money  into  the  coffers  of  the  trust  companies  in- 
creased rapidly.  And  as  time  went  on,  the  move- 
ment took  on  new  phases.  The  life  insurance 
company,  with  its  enormous  cash  assets,  naturally 
favored  its  own  trust  companies  in  the  matter  of 
bank  deposits  and  banking  business  generally.  And 
as  the  trust  companies  had  also  begun  to  go  largely 
into  the  investment  business  and  dealt  in  stocks  and 
bonds  with  practically  the  same  freedom  that  a  pri- 
vate investment  banker  did,  it  was  not  long  before 
practically  all  the  investing  of  life  insurance  funds 
was  being  done  through  the  subsidiary  trust  com- 
panies. Naturally,  in  many  cases  the  chief  desire 
of  the  directors  and  large  individual  stockholders 
of  the  trust  companies  (who  were  also  directors  or 
officers  of  the  parent  life  insurance  companies)  was 
to  make  big  profits  for  the  trust  companies;  so 
that,  in  many  cases,  the  insurance  companies  were 


THE  APEX  OF  "HIGH  FINANCE"       125 

discriminated  against  in  the  matter  of  prices  by 
their  own  directors  or  trustees. 

But  discrimination  did  not  stop  here.  As  we 
have  seen,  the  trust  companies  early  became  pro- 
moters, financial  underwriters,  and  controllers  of 
big  schemes.  This  sort  of  work  involved  the  use 
of  much  capital ;  and  the  tendency  was  to  get  more 
and  more  life  insurance  money  into  the  coffers  of 
the  trust  companies,  so  that  the  latter  would  have 
plenty  of  funds  to  work  with.  There  was  "big 
money"  in  these  things  for  the  trust  companies, 
but  the  life  insurance  companies  often  received 
only  the  normal  rate  of  interest  on  their  fat  de- 
posits which  were  used  to  make  unheard-of  profits 
for  their  own  directors. 

Notwithstanding  the  fact  that  trust  compan- 
ies and  interlocking  directors  were  growing  rich 
through  this  use  of  insurance  funds,  the  life  insur- 
ance companies  also  continued  to  prosper.  It  was 
a  period  when  practically  the  whole  country  was 
prospering,  when  New  York  City  especially  was 
waxing  richer  and  richer,  and  when  more  and  more 
men  were  not  only  taking  out  policies  but  were  going 
into  the  life  insurance  business.  Extraordinary  ef- 
forts were  continuously  made  by  the  great  insur- 
ance companies  to  add  to  their  lists  of  policyholders 


126  THE  MASTERS  OF  CAPITAL 

and  to  increase  their  surpluses.  Naturally,  all  life 
insurance  directorates  which  were  also  interested 
in  trust  companies  and  in  Wall  Street  affairs 
generally,  wanted  to  see  the  funds  of  their  com- 
panies flow  in  a  never  ceasing  stream,  and  they 
developed  the  most  efficient  and  far-reaching 
organizations  for  getting  new  business. 

By  1900  the  assets  of  the  great  life  insurance 
companies  in  New  York  City  had  begun  to  loom 
large  in  Wall  Street  operations.  At  the  beginning 
of  the  movement  we  have  been  following,  many 
more  or  less  inconspicuous  men  were  identified 
with  it,  but  it  was  not  long  before  the  larger  bank- 
ing powers  of  Wall  Street  began  to  realize  the  pos- 
sibilities in  the  control  of  life  insurance  assets. 
Prior  to  1890  the  "big  three"  New  York  com- 
panies —  the  Mutual,  the  Equitable,  and  the  New 
York  Life  —  had  few  conspicuous  banking  affilia- 
tions. But  about  that  time,  the  Morgan  house  be- 
gan to  identify  itself  more  closely  with  the  New 
York  Life,  whose  new  president,  John  A.  McCall, 
became  known  before  very  long  as  a  Morgan  man. 
The  Equitable  Life  had  had  its  various  banking 
affiliations,  and  its  president,  Henry  B.  Hyde,  was 
fairly  close  to  Wall  Street  affairs.  It  had  early 
become  the  controlling  factor  in  the  Mercantile 


THE  APEX  OF  "HIGH  FINANCE"       127 

Trust  Company,  which,  prior  to  the  reorganization 
period,  had  been  prominent  chiefly  as  a  conserva- 
tive, "old-line"  trust  company,  confining  itself 
almost  exclusively  to  the  original  business  of  per- 
forming the  work  of  trustee  and  agent,  to  which 
its  banking  and  deposit  business  was  only  inci- 
dental. The  Mutual  Life,  with  Richard  A.  Mc- 
Curdy  at  its  head,  had  grown  steadily  and  solidly, 
but  it  was  not  until  the  early  nineties  that  its 
name  became  identified  with  a  trust  company  or 
Wall  Street  business.  About  this  time,  however,  a 
small  trust  company,  known  as  the  New  York  Guar- 
antee and  Indemnity  Company,  came  under  the 
control  of  the  Mutual  Life.  Its  title  was  changed 
to  that  of  the  Guaranty  Trust  Company,  and  cer- 
tain trustees  of  the  Mutual  Life  Insurance  Company 
became  prominent  in  its  directorate.  Its  capital  was 
enlarged,  and  with  the  new  connection  its  credit  im- 
proved and  its  business  grew  by  leaps  and  bounds. 
The  control  of  the  United  States  Mortgage  and 
Trust  Company  was  also  acquired  by  the  Mutual 
Life  and  its  business  also  took  a  spurt. 

In  the  course  of  time,  many  trust  companies  of 
less  prominence  became  identified  with  the  insur- 
ance companies,  and  finally,  Wall  Street  bankers 
and  financiers  of  the  influential  type  began  to  flood 


128  THE  MASTERS  OF  CAPITAL 

the  directorates  of  the  insurance  companies  and 
the  trust  companies  alike.  Then  came  the  period 
of  big  financing,  the  decade  of  consolidation  and 
merger,  followed  by  several  years  of  feverish  spec- 
ulative activity  in  Wall  Street  and  vast  schemes 
of  promotion.  All  the  large  bankers  were  soon  on 
the  finance  committees  of  the  life  insurance  com- 
panies —  such  men  as  J.  P.  Morgan,  several  of  his 
partners,  Jacob  H.  Schiff  of  Messrs.  Kuhn,  Loeb 
and  Co.,  Henry  C.  Frick,  Edward  H.  Harriman, 
and  the  Rockefeller  representatives  —  indeed,  all 
the  big  captains  and  masters  of  Wall  Street. 

Life  insurance  assets  had  now  become  a  large 
factor  in  high  finance  and  a  vital  part  of  the  move- 
ment toward  the  control  and  capitalization  of  in- 
dustry in  general.  Banking  power,  as  identified 
with  the  different  groups,  now  implied  the  control 
not  merely  of  groups  of  national  banks  and  trust 
companies  but  also  of  the  life  insurance  companies 
with  large  assets  and  growing  resources.  Not  only 
were  the  "big  three"  involved  in  this  steadily  grow- 
ing concentration  of  power,  but  other  large  com- 
panies, such  as  the  Metropolitan  Life,  the  Prudential 
Life  of  Newark,  and  several  companies  in  more 
distant  cities,  were  becoming  assets  of  importance 
to  the  big  contending  groups  in  Wall  Street. 


THE  APEX  OF  "  HIGH  FINANCE  "       129 

During  that  remarkable  period  from  1898  to 
1904,  when  the  industrial  and  commercial  enter- 
prises were  being  more  and  more  heavily  capi- 
talized, when  fabulous  individual  fortunes  were  be- 
ing piled  up,  and  when  concentration  of  the  control 
of  finance  was  rapidly  hastening  to  its  climax,  the 
assets  of  the  insurance  companies  were  handled 
with  steadily  increasing  recklessness.  At  first 
considerable  caution  had  been  shown  in  the  use 
of  these  large  sums,  but  towards  the  end  of  the 
period  they  were  more  freely  used  in  speculative 
and  uncertain  enterprises.  Both  money  and  credit 
were  getting  scarce  under  the  strain  of  continued 
capitalization  and  promotion;  and  in  Wall  Street 
the  period  of  "undigested"  and  "indigestible"  se- 
curities was  arriving.  Private  bankers  were  not  so 
eager  to  secure  large  allotments  in  underwriting 
syndicates;  large  bond  and  stock  issues  did  not  go 
so  well  with  the  public  as  formerly.  And  yet  all 
the  giant  promoters,  the  Harrimans,  the  Morgans, 
and  their  allies,  needed  cash  and  credit  to  carry 
through  vast  enterprises.  Naturally,  therefore,  in- 
surance assets,  on  which  there  was  little  or  no  re- 
striction, were  used  more  and  more.  Not  only 
were  insurance  companies  of  great  strength  "allot- 
ted" abnormally  large  amounts  of  syndicate  under- 


130  THE  MASTERS  OF  CAPITAL 

writings  and  securities  by  their  own  trustee  bank- 
ers, but  their  subsidiary  trust  companies  and 
other  financial  dependencies  were  also  loaded  up 
in  the  same  way.  The  method  became  so  free  and 
easy  that  a  great  banking  house  engaged  in  carry- 
ing through  some  gigantic  operation  would  sim- 
ply "allot"  to  a  certain  insurance  company  a  spe- 
cified amount  of  bonds  or  other  securities  and 
would  then  instruct  its  president  or  trustees  to 
take  them,  willy-nilly. 

Naturally,  this  loose  and  extravagant  method  of 
making  use  of  hundreds  of  millions  of  dollars  be- 
longing to  hundreds  of  thousands  of  policyholders 
bred  extravagance  and  corruption  in  the  ranks  of 
the  smaller  minds  in  the  insurance  organizations. 
In  the  great  companies  particularly,  extravagance, 
waste,  and  inefficiency  steadily  grew.  Millions  of 
dollars  were  spent  annually  in  elaborate  furnishings 
for  executive  offices;  all  sorts  of  useless  positions 
were  created  for  retainers  and  worthless  officers  and 
clerks;  money  was  wasted  in  buildings,  in  useless 
advertising,  and  in  many  other  ways.  Graft  in  a 
thousand  forms  began  to  creep  in. 

In  1903  occurred  a  semi-panic  in  the  Wall  Street 
security  markets.  Business  had  fallen  off  notice- 
ably in  the  industrial  world;  the  railroads  staggered 


THE  APEX  OF  "HIGH  FINANCE"       131 

in  many  cases  under  the  heavy  capitalizations 
created  during  the  speculative  period  of  the  few 
years  previous;  and  money  was  scarce  and  high. 
President  Roosevelt  had  attacked  the  Northern 
Securities  merger,  and  the  Government  had  started 
suit  for  its  dissolution.  The  great  Steel  Trust  had 
fallen  on  evil  days,  and  its  stocks  and  bonds  had 
dropped  helter-skelter  to  low  levels.  This  was  a 
period  of  "undigested  securities,"  and  pessimism 
reigned  everywhere. 

Because  of  the  scarcity  of  capital  and  the  low 
credit  of  many  concerns,  a  feeling  of  unrest  and  in- 
security prevailed  in  financial  circles.  Some  out- 
side interests  began  to  investigate  the  stability  of 
large  concerns ;  and  some  banking  and  trust  company 
failures  ensued.  Then  the  security  holdings  of  in- 
surance companies,  which  were  obliged  to  file  an- 
nual reports  and  lists  of  their  securities,  began  to 
be  closely  scrutinized,  and  it  was  realized  that  the 
large  companies  were  loaded  up  with  many  un- 
profitable syndicate  accounts  and  large  invest- 
ments which  had  undergone  vast  depreciation. 
Criticism  soon  became  rampant,  and  various  suits 
were  started  against  companies  and  officials.  But 
little  change  occurred  until  the  following  year, 
when  strenuous  efforts  began  to  be  made  for  a 


132  THE  MASTERS  OF  CAPITAL 

thorough  investigation  of  the  affairs  and  methods 
of  the  companies. 

A  sensational  insurance  investigation  which  be- 
gan in  1905  lasted  for  several  months.  Under  the 
direction  of  Charles  E.  Hughes,  it  disclosed  to  the 
public  the  entire  inside  history  of  life  insurance 
finance  during  the  previous  decade,  with  all  its 
high  finance,  reckless  manipulation  of  funds,  waste, 
extravagance,  and  graft.  The  result  of  this  inves- 
tigation was  that  new  and  far  more  stringent  laws 
were  enacted  looking  to  the  safeguarding  of  the 
assets  of  policyholders  and  the  proper  investment 
of  insurance  funds. 

Thus,  at  one  stroke,  a  prolific  source  of  free  and 
unrestricted  cash  was  cut  off  from  the  speculator 
and  promoter.  The  hundreds  of  millions  which 
had  for  years  been  bandied  about  at  the  beck  and 
call  and  to  the  profit  of  small  groups  of  powerful 
men  were  no  longer  available. 

The  investigation  of  the  insurance  companies, 
with  its  results,  was  undeniably  one  of  the  factors 
which  helped  to  save  the  situation  when  the 
panic  of  1907  arrived.  Had  not  the  reckless  finan- 
cial methods  of  handling  insurance  funds  been 
curbed  a  few  years  before,  the  crash  of  1907  would 
have  been  far  more  disastrous  than  it  proved. 


THE  APEX  OF  "HIGH  FINANCE"       133 

The  insurance  companies  were  still  loaded  with 
large  amounts  of  unsalable  securities,  but  they 
bought  no  more,  and  under  strict  legal  restric- 
tions in  the  course  of  time  they  liquidated  most 
of  their  dangerous  assets  without  material  loss. 


CHAPTER  VIII 

THE    PANIC    OF    1907    AND    AFTER 

IT  is  not  to  be  assumed  that  the  concentration  of 
banking  power  and  the  control  of  corporate  activi- 
ties had  no  unfortunate  accompaniments .  Unques- 
tionably the  consolidation  of  the  great  railroad 
systems  of  the  country,  under  the  "community 
of  interest"  plan,  resulted  in  greatly  stabilizing 
freight  rates;  it  increased  efficiency  of  operation;  it 
enabled  the  managements  to  develop  large  amounts 
of  new  business  and  to  show  greatly  increased  prof- 
its; and  it  bred  a  spirit  of  invincible  optimism  in 
Wall  Street.  The  large  crops  of  these  years,  the 
unusually  heavy  tide  of  foreign  immigration,  and 
the  boom  in  business  generally,  all  helped  to 
increase  this  feeling  of  optimism  in  Wall  Street. 
Great  material  progress  and  prosperity,  however, 
inevitably  invite  speculation;  and  speculation,  once 
begun,  grows  by  what  it  feeds  on. 

In  the  closing  months  of  1904  a  great  speculative 

134 


THE  PANIC  OF  1907  AND  AFTER        135 

movement  in  the  stock  market  began  and  continued 
almost  without  interruption  through  1905  and  well 
into  1906.  The  prices  of  railroad  stocks  soared 
to  unheard-of  heights;  Great  Northern  preferred 
rose  above  300;  Northern  Pacific  above  200;  St. 
Paul  to  nearly  200;  Atchison,  Southern  Pacific, 
Union  Pacific,  New  York  Central,  and  the  rest  all 
steadily  climbed  to  higher  and  higher  levels.  In- 
dustrial stocks,  also,  were  having  their  day,  and 
new  enterprises  were  being  floated  in  Wall  Street 
by  the  hundred.  Credit  was  easy  to  obtain;  in- 
terest rates  were  low;  and  after  1905,  most  of  the 
bankers  and  speculative  investors  had  become  so 
accustomed  to  high  prices  and  large  speculative 
profits  that  almost  any  financial  "proposition" 
found  ready  acceptance  in  Wall  Street. 

It  was  a  new  day  for  the  underwriting  syndicate, 
and  brokers  eagerly  sought  for  opportunities  to  un- 
derwrite anything  that  promised  profits,  regard- 
less of  its  merit.  Many  undertakings  of  extremely 
doubtful  or  speculative  nature  were  passed  along 
as  sound  without  any  real  investigation  whatever. 
Many  private  banking  firms,  even  of  relatively  con- 
servative reputation,  acquired  the  habit  of  join- 
ing in  questionable  under  writings.  The  new  era  of 
banking  control,  moreover,  had  brought  with  it  a 


136  THE  MASTERS  OF  CAPITAL 

superficial  notion  that  financial  panics  like  those 
of  1873  and  1893  could  never  again  occur.  It  was 
frequently  said  that  the  coordination  of  American 
industry,  under  the  control  of  powerful  banking 
institutions,  would  always  be  a  safeguard  against 
the  dangers  of  inflation  and  over-speculation.  Yet 
in  1906  financial  America  was  in  a  very  true  sense 
riding  for  a  fall. 

The  United  States  Shipbuilding  Company, 
known  as  "the  Shipbuilding  Trust,"  illustrates 
the  speculative  spirit  which  was  undermining  the 
financial  credit  of  the  country.  This  was  a  com- 
bination of  shipbuilding  manufacturers,  promoted 
on  the  theory  that  Congress,  under  the  control  of 
the  Republican  party,  would  soon  pass  a  liberal 
ship-subsidy  law  which  would  be  followed  by  a 
great  revival  in  shipbuilding.  This  expectation 
had  also  buoyed  up  Morgan's  International  Mer- 
cantile Marine  Company  formed  in  1902.  No 
legislation  of  the  sort  took  place;  but  the  promot- 
ers of  "the  Shipbuilding  Trust"  continued  their 
efforts  with  undiminished  fervor.  A  young  man 
named  Daniel  Le  Roy  Dresser  organized  the  Trust 
Company  of  the  Republic  and  attempted  to  under- 
write this  United  States  Shipbuilding  Company. 
Eight  companies,  one  or  two  of  which  were  fairly 


THE  PANIC  OF  1907  AND  AFTER       137 

valuable,  the  rest  being  largely  heaps  of  junk,  were 
merged  in  the  combination,  the  capitalization  of 
which  was  colossal.  An  enormous  bonded  debt  was 
created  to  raise  funds  to  buy  up  the  operating 
companies  at  high  valuations.  One  small  plant, 
which  the  owners  a  year  before  would  have  been 
glad  to  sell  for  $100,000,  was  bought  up  at  a  valua- 
tion of  over  $2,000,000,  one-quarter  of  which  was 
paid  in  cash. 

The  United  States  Shipbuilding  Company  had 
hardly  been  formed  when  it  began  to  fall  to  pieces. 
The  underwriters  were  not  able  to  make  good. 
Then  to  the  astonishment  of  everybody,  its  presi- 
dent, Lewis  Nixon,  announced  that  the  company 
had  bought  the  Bethlehem  Steel  Company  from 
Charles  M.  Schwab.  This  seemed  incredible,  as 
the  Bethlehem  Steel  Company  was  of  more  tan- 
gible value  than  the  whole  outfit  of  shipbuilding 
plants.  Everybody  thought  Schwab  was  crazy,  for 
he  was  to  be  paid,  so  it  was  generally  understood, 
in  bonds  of  the  United  States  Shipbuilding  Com- 
pany, which  promised  to  be  worthless.  But  Schwab 
was  far  from  crazy.  He  had  insisted  that  the 
bonds  carry  voting  power.  Presently,  when  the 
whole  scheme  went  down  with  a  crash,  carry- 
ing with  it  the  Trust  Company  of  the  Republic, 


138  THE  MASTERS  OF  CAPITAL 

Schwab  was  found  in  possession  of  the  entire  group 
of  plants,  including  the  Bethlehem  Steel.  He  then 
lopped  off  the  worthless  properties  and  attached 
the  good  shipbuilding  plants  as  subsidiaries  to  the 
Bethlehem  Steel  Company. 

Another  and  equally  unsound  type  of  promo- 
tion was  going  on  in  banking.  A  number  of  smaller 
financiers,  trying  to  copy  Morgan  and  Standard 
Oil,  would  form  a  chain  of  banks  with  unlimited 
capital,  to  promote  their  speculations.  Notable 
among  these  speculative  bankers  was  Charles  W. 
Morse,  a  man  of  unusual  ability.  He  had  made  a 
large  fortune  in  the  American  Ice  Company  and 
in  the  manipulation  of  its  securities  in  Wall  Street; 
he  had  also  done  something  in  shipbuilding  and 
operating  steamships.  By  1905  he  had  reached  a 
position  of  substantial  power  in  Wall  Street.  He 
acquired  control  of  the  Bank  of  North  America, 
one  of  Wall  Street's  old  and  solid  institutions,  and 
began  to  make  use  of  this  bank's  credit  and  re- 
sources for  financing  his  promotions.  Finding  him- 
self in  need  of  more  capital,  he  acquired  control 
of  other  banks  by  making  use  of  the  resources  of 
the  banks  he  already  owned  or  controlled.  By  the 
close  of  1906,  he  had  under  his  own  sway,  or  that 
of  his  close  friends,  seven  or  eight  good  banks, 


THE  PANIC  OF  1907  AND  AFTER        139 

besides  having  considerable  influence  in  a  number 
of  others.  He  then  launched  an  ambitious  scheme 
for  consolidating  all  the  coastwise  steamship  lines 
on  the  Atlantic  seaboard,  paying  fabulously  high 
prices  for  these  lines  and  capitalizing  them  to  the 
moon.  Having  thus  acquired  nearly  everything 
afloat  from  Maine  to  Florida,  he  bought  from 
Morgan  all  the  stock  of  the  Central  of  Georgia 
Railroad  Company  in  order  to  get  control  of  the 
Ocean  Steamship  Company,  a  line  which  operated 
from  Savannah  to  New  York  and  connected  with 
the  Central  of  Georgia. 

Meanwhile  the  great  pot  in  Wall  Street  went 
boiling  on.  In  the  summer  of  1906  the  Harriman 
financiers  added  fuel  to  the  fire  by  suddenly  in- 
creasing from  six  to  ten  per  cent  the  dividend  on 
Union  Pacific  common,  thus  sending  that  stock  up 
forty  points  practically  overnight.  Discretion  in 
Wall  Street  was  thrown  to  the  winds;  many  of  the 
most  conservative  houses  began  to  push  securities 
of  more  and  more  doubtful  types.  A  mining  stock 
craze  broke  out,  and  in  a  few  months  the  whole 
country  was  madly  buying  up  worthless  shares  in 
a  thousand  or  more  gold  and  silver  mines  at  ri- 
diculously high  prices  and  without  thought  of  in- 
vestigation. The  Wall  Street  "curb"  became  a 


140  THE  MASTERS  OF  CAPITAL 

bedlam  of  mining  brokers,  and  even  the  Stock 
Exchange  gave  dignity  to  a  number  of  mining 
ventures  by  listing  their  stocks. 1 

Long  before  the  close  of  1906  there  were  omi- 
nous signs  of  danger  ahead,  and  many  thoughtful 
men  began  to  urge  caution.  The  wild  speculation 
caused  a  steadily  increasing  strain  on  credit,  and 
demand  loans  in  Wall  Street  rose  in  September  to 
the  highest  figure  they  had  reached  in  years.  In 
the  same  month,  the  New  York  banks  reported  a 
deficit  in  reserves  and  appealed  to  the  United  States 
Treasury  for  surplus  gold.  This  timely  deposit 
afforded  temporary  relief;  but  the  year  closed  in 
strain.  Most  of  the  Wall  Street  bankers,  however, 
persisted  in  the  theory  that  fundamentally  every- 
thing was  sound,  that  the  outlook  for  1907  was 
distinctly  hopeful,  and  that  after  the  turn  of  the 
New  Year  all  would  be  well. 

Wall  Street  financiers,  high  and  low,  seemed  to 
be  hypnotized  by  the  long  period  of  easy  money, 
rising  prices,  quickly  made  fortunes,  and  successful 

1  The  immediate  cause  of  the  mining  stock  boom  was  the  discovery, 
in  the  previous  year,  of  the  great  silver  deposits  in  the  Cobalt  re- 
gion of  Canada  and  the  gold  deposits  in  the  Goldfield  region  of  Ne- 
vada. A  few  companies,  such  as  the  Nipissing  mines  in  Canada  and 
the  Jumbo  mine  in  Nevada,  were  real  bonanzas  and  paid  millions 
in  time  to  their  stockholders,  but  nearly  all  the  others  sooner  or 
later  turned  out  to  be  worthless. 


THE  PANIC  OF  1907  AND  AFTER        141 

promotions.  Harriman  certainly  did  not  foresee 
any  bad  turn  in  affairs,  for  in  1906  he  caused  the 
Union  Pacific  and  Southern  Pacific  companies  to 
employ  their  large  surpluses  in  buying  large  addi- 
tional blocks  of  railroad  stocks  at  top  prices;  the 
Morgan  and  Hill  interests  did  not  seem  to  foresee 
trouble,  for  they  were  developing  their  railroad 
properties  and  spending  money  like  water  on  im- 
provements; the  City  Bank  or  Standard  Oil  mas- 
ters did  not  gauge  the  future  accurately,  for  they 
were  not  only  doing  nothing  to  stem  the  tide  of 
speculation,  but  were  actually  floating  various 
schemes  of  their  own  on  the  current.  Certainly 
smaller  and  more  speculative  men,  like  Charles  W. 
Morse,  Charles  M.  Schwab,  F.  Augustus  Heinze, 
and  Charles  T.  Barney  of  the  Knickerbocker  Trust 
Company  did  not  fear  the  future,  for  they  were  ex- 
tending their  operations  in  all  directions.  Schwab 
had  gone  into  mining  on  a  large  scale;  Heinze 
was  promoting  a  balloon  known  as  the  United 
Copper  Company,  aided  by  the  credit  of  the 
Mercantile  National  Bank,  control  of  which  he 
had  acquired;  Morse  was  floating  his  ship  bub- 
ble; and  Barney  was  sinking  the  funds  of  the 
great  Knickerbocker  Trust  Company  in  all  sorts 
of  unsound  ventures. 


142  THE  MASTERS  OF  CAPITAL 

Little  change  in  conditions  occurred  until  Feb- 
ruary, 1907,  but  with  the  opening  of  the  month 
the  stock  market  began  to  crumble,  and  the  banks 
commenced  to  call  in  loans  and  mend  their  fen- 
ces. But  the  real  unsoundness  of  the  day  was  not 
understood  until,  a  few  weeks  later,  Henry  H. 
Rogers,  vice-president  of  the  Standard  Oil  Com- 
pany, found  difficulty  in  securing  a  loan  of  twenty 
million  dollars  for  his  Virginian  railway,  which  he 
was  at  that  time  building  to  open  up  some  soft-coal 
fields  in  the  western  part  of  the  State.  Rogers  had 
to  pay  an  equivalent  of  over  eight  per  cent  for  this 
loan,  secure  it  with  over  thirty  million  dollars  of  the 
highest  grade  investment  stocks  and  bonds,  and 
personally  endorse  the  notes,  though  his  credit 
was  as  high  as  that  of  any  man  in  the  United 
States.  This  transaction  created  consternation. 
If  the  vice-president  of  the  Standard  Oil  Company, 
that  great  reservoir  of  ready  cash,  had  to  go  into 
the  market  for  a  pittance  like  twenty  million 
dollars  and  pay  over  eight  per  cent  for  it,  then 
indeed  things  were  in  bad  shape. 

The  "March  panic,"  or  "silent  panic"  as  it 
was  called,  immediately  followed.  Stocks  dropped 
three  to  ten  points  at  a  time;  money  rates  reached  a 
great  height;  banks  closed  their  doors  to  borrowers; 


THE  PANIC  OF  1907  AND  AFTER        143 

and  stockbrokers  began  to  fail.  Speculators  by 
the  thousands  were  wiped  out;  the  mining  boom 
on  the  "curb"  completely  collapsed;  and  in  Wall 
Street  financiers  were  seen  daily  and  hourly,  rush- 
ing hither  and  thither,  trying  to  devise  ways 
and  means  to  weather  the  storm.  But  the  high 
money  rates  drew  gold  from  Europe;  the  Secretary 
of  the  Treasury  deposited  further  funds  in  New 
York  banks;  and  as  the  crop-moving  period  had 
ended,  funds  naturally  gravitated  to  New  York 
City,  and  thus  helped  to  relieve  the  situation. 
The  panic  was  stayed  for  the  time  being. 

Wall  Street  still  refused  to  believe  that  any  fur- 
ther trouble  was  ahead.  Business  throughout  the 
country  continued  at  high  pressure;  railroad  earn- 
ings were  large,  and  industries  were  booming;  the 
new  crop  outlook  was  favorable;  and  while  money 
rates  were  high,  there  seemed  to  be  enough  at  the 
moment  to  go  round.  Even  the  big  "masters  of 
capital,"  although  following  a  more  cautious  policy, 
seemed  to  think  that  the  worst  was  over.  Nearly 
everybody  said,  "Wall  Street  has  now  cleaned 
house;  we  will  soon  be  in  a  bigger  boom  than  ever. " 
All  seemed  to  base  their  reasoning  on  the  idea  that, 
with  industry  and  business  going  on  prosperously, 
any  further  trouble  in  Wall  Street  was  unthinkable. 


144  THE  MASTERS  OF  CAPITAL 

After  the  1st  of  July,  however,  there  were  de- 
velopments which  created  disquietude  in  high 
places.  The  United  States  Steel  Corporation  re- 
ported an  alarming  falling  off  in  unfilled  tonnage; 
railroad  earnings  suddenly  began  to  sag;  then  the 
money  market  tightened  up,  and  the  fear  became 
widespread  that  the  fast  approaching  crop-mov- 
ing period  would  create  a  great  money  stringency. 
Presently  came  the  collapse  of  Charles  W.  Morse's 
shipping  combination.  Then,  to  cap  the  climax, 
came  the  failure  of  the  City  of  New  York  to  sell  a 
large  block  of  bonds  in  Wall  Street.  Altogether 
August  was  an  uneasy  month  for  the  "masters 
of  capital"  and  for  their  thousands  of  satellites 
and  followers. 

September  saw  the  heads  of  big  business  often 
in  consultation;  the  powers  were  at  last  awake  to 
the  seriousness  of  the  situation.  The  newspapers 
were  urged  to  talk  encouragingly;  Wall  Street  in- 
terviews were  uniformly  optimistic.  Clearly,  stren- 
uous efforts  were  being  made  to  tide  over  the 
crisis.  But  to  no  avail.  In  October  came  the 
Heinze  failure,  involving  first  the  Mercantile 
National  Bank  and  then  the  whole  Heinze- 
Morse  chain  of  banks.  Next  occurred  the  run  on 
the  Knickerbocker  Trust  Company,  the  suicide  of 


THE  PANIC  OF  1907  AND  AFTER        145 

its  president,  and  the  closing  of  its  doors.  Then 
followed  in  quick  succession  the  failure  of  the  Na- 
tional Bank  of  North  America  and  runs  on  the 
Trust  Company  of  America,  the  Lincoln  Trust  Com- 
pany, and  a  dozen  other  institutions.  All  these 
disasters  involved  banks  in  other  cities  and  pulled 
down  private  firms  and  brokers.  The  accompany- 
ing panic  in  the  stock  market  completed  the  havoc. 
The  holocaust  was  on. 

The  small  group  of  mighty  financiers  —  the  men 
who  had  been  chiefly  responsible  for  the  building 
up  of  the  great  concentrated  system  of  banking 
power,  corporate  control,  community  of  interests, 
and  interlocking  relationships,  all  of  which  had 
finally  culminated  in  this  terrific  smash  —  these 
were  the  men  whose  powers  were  now  to  be  taxed 
to  save  financial  America.  The  morning  after  the 
Knickerbocker  smash,  while  the  run  on  the  Trust 
Company  of  America  was  filling  all  Wall  Street  with 
crowds  of  excited  depositors,  a  man  walked  into  the 
office  of  J.  P.  Morgan  and  Company,  pushed  past  the 
guard,  and  entered  Morgan's  private  room.  Mor- 
gan nodded  and  said,  "Good  morning,  Mr.  Frick." 
The  two  men  talked  quietly  for  perhaps  ten  min- 
utes. Frick  went  away ;  then  Edward  H.  Harriman 
came  in.  Following  him  came  other  "masters," 


146  THE  MASTERS  OF  CAPITAL 

one  by  one  or  in  pairs.  Finally  came  James  Still- 
man,  president  of  the  National  City  Bank  and 
spokesman  for  the  great  Standard  Oil  interests. 

That  day  many  millions  of  dollars  were  doled 
out  to  the  banks  by  the  Secretary  of  the  Treas- 
ury; government  bonds  were  supplied  by  institu- 
tions and  private  investors  for  temporary  use, 
John  D.  Rockefeller  alone  lending  ten  million  dol- 
lars' worth.  Then  both  Morgan  and  Stillman 
made  arrangements  to  buy  bills  of  exchange  in 
enormous  quantities,  and  force  gold  shipments 
from  Europe.  These  measures  began  the  relief 
which  the  situation  needed. 

Yet  one  of  the  gravest  dangers  remained.  This 
was  the  position  of  the  brokerage  firm  of  Moore 
and  Schley,  involved  in  a  big  speculative  pool  in 
the  stock  of  the  Tennessee  Coal,  Iron  and  Railroad 
Company.  Moore  and  Schley  had  pledged  over 
six  millions  of  the  Tennessee  Coal  and  Iron  stock 
for  loans  among  the  Wall  Street  banks.  The  banks 
had  called  the  loans,  and  the  firm  could  not  pay, 
as  was  of  course  known  to  Morgan  and  the  others. 
If  Moore  and  Schley  should  fail,  a  hundred  more 
failures  would  follow  and  then  all  Wall  Street  might 
go  to  pieces.  The  only  thing  to  do  was  to  save 
Moore  and  Schley. 


THE  PANIC  OF  1907  AND  AFTER        147 

The  Tennessee  Coal,  Iron  and  Railroad  Company 
was  one  of  the  chief  competitors  of  United  States 
Steel  and  it  owned  enormously  valuable  iron  and 
coal  deposits.  It  was  Morgan's  plan,  in  which 
Frick,  Harriman,  and  the  others  agreed,  to  buy  the 
Tennessee  stock  from  Moore  and  Schley.  In  this 
way  the  panic  could  be  stayed  and  a  big  stroke  of 
good  business  done  for  the  greater  corporation. 
Gary  was  called  in  to  discuss  the  matter.  The  only 
obstacle  seemed  to  be  the  Government.  Would  a 
purchase  of  this  kind  be  construed  as  a  violation 
of  the  Sherman  Act?  A  deputation,  consisting  of 
Gary,  Perkins,  and  others,  was  dispatched  to  Wash- 
ington to  lay  the  matter  before  President  Roose- 
velt. The  President  promised  immunity  and  the 
purchase  was  then  immediately  consummated.  The 
United  States  Steel  Corporation  paid  thirty  million 
dollars  in  its  own  bonds  for  the  Tennessee  stock; 
these  bonds  were  accepted  as  collateral  by  the  bank 
where  the  Tennessee  stock  had  been  refused;  and 
the  firm  of  Moore  and  Schley  was  saved.  The  an- 
nouncement had  an  immediate  effect,  and  from 
that  hour  matters  began  to  mend. 

Before  the  turn  of  the  new  year,  Wall  Street  was 
normal  again.  The  prices  of  securities  had  rallied 
substantially,  the  money  market  had  grown  much 


148  THE  MASTERS  OF  CAPITAL 

easier,  fear  and  fright  had  disappeared,  and  men 
were  looking  forward  with  confidence  into  the 
future.  And,  as  the  year  1908  wore  on,  it  became 
evident  that  the  panic  marked  the  culmination  of 
"high  finance."  The  great  banking  groups  were 
still  intact,  to  be  sure,  and  their  influence  and 
power  seemed  as  far-reaching  as  ever.  But  the 
glamour  of  speculation  and  promotion  had  largely 
disappeared.  The  shock  of  the  panic  had  put  con- 
servatism into  the  survivors  and  of  course  a  great 
horde  of  speculators  had  fallen. 

Yet  there  was  still  rivalry  between  Harriman 
and  Morgan.  In  the  fall  of  1908  Harriman  induced 
the  Mutual  Life  Insurance  Company  to  sell  him 
half  of  the  working  control  of  the  great  Guaranty 
Trust  Company,  with  its  one  hundred  million  of 
assets.  And  in  the  early  part  of  the  following  year 
Harriman  obtained  an  option  on  a  half  interest  in 
the  control  of  the  Equitable  Life  Assurance  So- 
ciety. Harriman  evidently  proposed  to  form  a 
banking  power  greater  even  than  that  of  the  Na- 
tional City  Bank  or  of  the  Morgans,  as  a  part  of 
a  colossal  scheme  which  he  was  developing.  The 
control  of  the  Union  Pacific  system,  the  great- 
est railroad  system  on  the  American  continent  — 
for  the  Union  Pacific  at  that  time  controlled  two 


THE  PANIC  OF  1907  AND  AFTER        149 

lines  to  the  Atlantic  seaboard  —  did  not  satisfy 
this  man's  ambition.  He  was  working  for  a  world 
railroad  empire.  Before  the  panic  year  Harriman 
had  made  his  control  of  the  Baltimore  and  Ohio 
practically  secure.  During  the  dark  days  of  the 
panic  he  had  taken  over  from  Charles  W.  Morse 
the  stock  of  the  Central  of  Georgia  and  had  made 
this  railroad  a  subsidiary  of  the  Illinois  Central. 
Now  he  was  planning  a  railroad  system  in  Asia 
which  would  connect  with  the  Siberian  Railway  in 
Russia  and  finally  work  through  to  the  capitals  of 
Europe.  He  had  already  secured  an  option  on  the 
South  Manchurian  Railway  in  China  and  was  en- 
deavoring to  obtain  the  cooperation  and  backing 
of  the  Japanese  Government  to  further  his  plans. 
Had  Harriman  lived,  no  one  knows  what  might 
have  occurred  in  railroad  history  during  the  follow- 
ing few  years.  But  he  was  playing  a  very  difficult 
game  and  the  strain  was  beginning  to  tell  on  him. 
In  the  summer  of  1909  he  was  taken  seriously  ill 
and  died  in  the  early  fall.  The  death  of  Harriman 
caused  an  almost  immediate  change  in  the  bank- 
ing situation  in  New  York.  Within  three  months 
Morgan  and  his  associates  had  bought  Harriman's 
stock  in  the  Guaranty  Trust  Company  and  with  it 
the  holdings  of  the  Mutual  Life  Insurance  Company. 


150  THE  MASTERS  OF  CAPITAL 

Later  Morgan  acquired  from  Thomas  F.  Ryan 
control  of  the  Equitable  Life  Assurance  Society, 
which  had  fallen  into  Ryan's  hands  in  1905.  Thus 
we  find  Morgan  in  practical  control  of  the  "Big 
Three"  in  life  insurance  in  New  York,  for  he  had 
already  dominated  the  New  York  Life  for  many 
years.  He  then  merged  the  Morton  and  the  Fifth 
Avenue  Trust  companies  into  the  Guaranty  and 
this  union  gave  him  and  his  associates  a  domi- 
nating position  among  the  trust  companies  of  New 
York,  since  he  already  controlled  the  powerful  and 
growing  Bankers  Trust  Company,  which  had  been 
formed  a  few  years  before.  These  moves  also  re- 
sulted in  giving  him  a  closer  grip  on  the  affairs  of 
the  National  Bank  of  Commerce. 

This  growth  of  the  Morgan  banking  power  did 
not,  however,  excite  any  spirit  of  competition  or 
rivalry  between  his  interests  and  those  of  Standard 
Oil,  for  the  time  had  passed  when  rivalry  in  bank- 
ing was  the  fashion.  Before  long  it  could  be  said, 
indeed,  that  two  rival  banking  groups  no  longer 
existed,  but  that  one  vast  and  harmonious  banking 
power  had  taken  their  place. 

Harriman  was  now  dead;  Henry  H.  Rogers  was 
dead;  Alexander  J.  Cassatt,  the  great  Pennsyl- 
vania Railroad  president,  was  dead;  James  Stillman 


THE  PANIC  OF  1907  AND  AFTER        151 

had  retired  from  active  business;  William  Rocke- 
feller was  no  longer  an  active  business  promoter. 
Times  were  changing  and  new  men  were  coming  to 
the  front.  Frank  A.  Vanderlip,  the  young  head  of 
the  National  City  Bank,  was  becoming  more  and 
more  the  spokesman  for  the  Rockefeller  interests; 
George  W.  Perkins  was  still  active  with  the  Mor- 
gans, but  the  strong  personality  of  Henry  P.  Davi- 
son  was  beginning  to  dominate  the  firm.  Though 
Morgan  himself  remained  in  command  until  his 
death  in  1913,  he  was  clearly  growing  old  and 
was  placing  more  and  more  responsibility  on  his 
younger  partners. 

These  newer  men  in  Wall  Street  were  not  the 
products  of  the  old  time,  when  experience  was 
gained  by  building  up  and  welding  together  the 
parts  of  the  vast  modern  industrial  and  banking 
machine.  They  had  not  been  educated  in  the  hard 
and  struggling  school  for  mastery  through  which 
Morgan  and  Frick  and  Harriman  and  Rockefeller 
had  come.  When  they  arrived,  they  found  the  finan- 
cial machine  already  in  motion;  their  work  was  to 
perfect  it  and  keep  it  well  oiled.  Consequently, 
with  the  arrival  of  the  new  and  younger  school  of 
financiers,  a  less  spectacular  season  set  in  for  Wall 
Street.  Money  power  increased;  intercorporate 


152  THE  MASTERS  OF  CAPITAL 

relationships  were  maintained;  but  few  further 
steps  were  taken  in  elaborating  or  developing 
the  system. 

Long  before  the  panic  of  1907,  political  rum- 
blings had  reached  the  ears  of  Wall  Street.  In 
President  Roosevelt's  first  term,  the  Sherman  Act 
had  been  invoked  against  the  Northern  Securities 
Company,  and  that  gigantic  product  of  the  spirit 
of  consolidation  had  been  dissolved  by  decree  of 
court.  A  little  later,  new  powers  were  given  to  the 
Interstate  Commerce  Commission  over  the  opera- 
tion of  the  railroads,  and  for  the  first  time  the  Com- 
mission was  fully  empowered  to  regulate  freight 
rates.  The  New  York  insurance  investigation 
under  Charles  E.  Hughes,  with  its  astonishing  dis- 
closures, had  shown  growing  public  aversion  to  thf 
methods  of  "high  finance." 

The  panic,  with  its  accompanying  disasters,  had 
a  large  share  in  prompting  the  Government  at 
Washington  to  take  action  against  the  trusts;  and 
before  Roosevelt  left  the  White  House  in  1909 
suits  had  been  brought  against  a  large  number  of 
industrial  trusts,  including  Standard  Oil  and  To- 
bacco. Later,  suits  were  instituted  against  the  Steel 
Trust,  the  Harvester  Trust,  and  a  great  many 
others.  When  Taft  became  President  in  1909. 


THE  PANIC  OF  1907  AND  AFTER        153 

many  of  the  big  combinations  formed  during  the 
previous  decade  were  practically  under  indictment. 
In  1911  the  Supreme  Court  ordered  the  dissolu- 
tion of  Standard  Oil  and  Tobacco  and  of  a  large 
number  of  smaller  trusts  as  well.  These  decisions 
brought  about  radical  changes  in  the  character  of 
the  corporations.  The  original  subsidiary  compan- 
ies were  obliged  to  take  over  the  properties  under 
nominally  competitive  conditions.  Such  dissolu- 
tions proved  in  the  end,  however,  to  be  mere  changes 
of  form,  for  the  various  companies  involved  con- 
tinued to  be  owned,  controlled,  and  managed  by 
practically  the  same  men,  with  little  if  any  real 
competition. 

Later  a  drive  against  the  railroads  began  in  the 
same  way;  the  Union  Pacific  was  forced  to  disgorge 
its  interest  in  the  Southern  Pacific  Company,  and 
the  Pennsylvania  disposed  of  its  control  in  its  com- 
petitor, the  Baltimore  and  Ohio.  The  new  federal 
laws  regulating  freight  rates  made  the  "commu- 
nity of  interest"  plan  of  interlocking  control  of  lit- 
tle use,  so  that  the  different  railroads  began  liqui- 
dating their  interest  in  other  properties  to  a  large 
extent.  Within  a  few  years,  the  ties  binding  to- 
gether the  big  trunk  lines  and  larger  systems  were 
steadily  loosened.  And  finally,  Federal  statutes 


154  THE  MASTERS  OF  CAPITAL 

prohibiting  interlocking  directorates,  not  only 
among  competing  railroad  systems,  but  among 
banks  and  industrial  concerns,  completed  the  proc- 
ess of  "unscrambling  the  eggs."  Before  the  Great 
War  opened,  the  long  chapter  of  "high  finance," 
as  understood  during  the  wild  and  dramatic  days 
of  1901  to  1906,  had  practically  closed. 


CHAPTER  IX 

WALL  STREET  AND  THE  WORLD  WAR 

WAR  is  the  great  revealer;  it  demonstrates,  as  does 
nothing  else,  the  strength  and  weakness  of  a  nation, 
material  and  spiritual.  The  first  two  years  of  the 
recent  stupendous  struggle  disclosed  the  financial 
and  industrial  greatness  of  the  United  States;  the 
last  two  years  happily  showed  that  the  nation  was 
great  in  other  things  than  money,  munitions,  and 
food.  Yet  it  became  apparent,  even  in  the  days 
of  American  neutrality,  that  the  support  of  Ameri- 
can agriculture  and  industry  was  practically  indis- 
pensable to  the  allied  cause.  America  possessed 
the  largest  available  supply  of  that  copper,  steel, 
cotton,  and  food  without  which  the  armies  of 
the  Entente  would  have  struggled  in  vain.  Wall 
Street  became,  at  least  temporarily,  the  internation- 
al money  market;  more  than  a  third  of  all  the  gold 
in  the  world  soon  found  its  way  to  New  York;  and 
the  United  States  which,  since  the  Revolution,  had 

155 


156  THE  MASTERS  OF  CAPITAL 

been  a  debtor  nation,  soon  discovered  that  Europe 
owed  her  far  more  money  than  she  had  ever  owed 
Europe.  The  mere  fact  that,  in  1916,  the  United 
States  produced  43,000,000  tons  of  steel,  while 
Great  Britain,  which  normally  ranks  next  to  this 
country  in  steel  manufacture,  produced  9,000,000 
tons,  not  only  indicates  the  extent  to  which  Ameri- 
can industry  had  expanded  under  the  pressure  of 
war,  but  gives  some  indication  of  the  part  which  it 
was  playing  on  European  battlefields.  Thus,  long 
before  American  armies  gave  Marshal  Foch  that 
superiority  in  men  which  turned  the  balance  from 
defeat  to  victory,  American  mines,  American  steel 
mills,  American  farms,  and  American  money  had 
become  powerful  elements  in  the  war. 

Wall  Street  awoke  rather  slowly  to  its  new  posi- 
tion as  a  maker  of  history.  Its  first  reaction  to 
the  European  nightmare  was  one  of  bewilderment 
and  panic.  In  this  it  merely  reflected  the  mental 
state  of  the  European  bourses  of  which  it  had  been 
a  dependent  for  many  years.  The  hardest  headed 
American  business  man  had  difficulty  in  keeping 
his  poise  when  all  the  Stock  Exchanges  of  Europe 
had  closed  their  doors  and  when  the  news  ticker 
reported  a  run  upon  the  Bank  of  England.  Wall 
Street  had  never  faced  such  a  crisis  as  that  which 


WALL  STREET  AND  THE  WORLD  WAR  157 

dawned  on  the  morning  of  August  3,  1914.  Only 
once  in  its  history  of  more  than  a  hundred  years 
had  this  great  market  suspended  operations,  and 
then  only  for  a  few  days  during  the  panic  of  1873. 
But  the  conditions  facing  it  in  August,  1914,  were 
unparalleled.  The  Kaiser's  ultimatums  to  Rus- 
sia and  France,  making  war  inevitable,  caused 
European  investors  to  rush  their  securities  to  the 
London  stock  market,  which  averted  a  panic  only 
by  closing.  Since  all  the  important  markets  of 
Europe  and  South  America  followed  the  London 
example,  there  remained  only  one  place  in  the 
world  where  stocks  could  be  sold  —  New  York. 
At  that  time  European  investors,  for  the  larger 
part  British,  held  at  least  $4,000,000,000  of  Ameri- 
can securities.  There  was  not  the  slightest  ques- 
tion that  they  would  attempt  to  dispose  of  these 
on  almost  any  terms.  There  are  experts  now  who 
believe  that  the  American  market  could  then  have 
stood  this  strain,  but  there  were  few  who  enter- 
tained such  encouraging  ideas  in  August,  1914. 
The  prevailing  opinion  then  was  that  all  American 
securities  would  suffer  such  declines  that  a  general 
calling  of  bank  loans  would  result  and  that  the 
country  would  be  visited  with  the  greatest  financial 
and  industrial  panic  in  its  history.  While  the  New 


158  THE  MASTERS  OF  CAPITAL 

York  Stock  Exchange  closed  on  July  31, 1914,  Wall 
Street  was  kept  in  suspense  for  twenty -four  hours. 
On  Monday  morning,  the  3d  of  August,  the  usual 
aggregation  of  brokers,  most  of  them  in  a  high 
state  of  excitement,  gathered  on  the  floor.  The 
gong  which  announces  the  beginning  of  business 
rings  promptly  at  ten  o'clock:  the  employee  whose 
business  it  is  to  ring  it  stood  at  his  post.  As 
the  pointer  on  the  clock  passed  fifteen  minutes  to 
ten  and  started  towards  the  fatal  hour,  the  nerv- 
ous tension  increased.  The  excited  members  all 
had  vast  quantities  of  stocks  which  they  had  been 
ordered  to  sell,  and  they  trembled  at  what  would 
happen  when  they  threw  these  on  the  market. 
It  was  not  until  five  minutes  to  ten  that  an  officer 
of  the  Exchange  stepped  upon  the  floor  and  read 
the  official  notice  that  the  market  would  be  closed 
indefinitely.  The  cheer  that  went  up  eloquently 
voiced  the  relief  which  this  step  brought  to  a 
chaotic  situation. 

This  closing  indicated  that  the  United  States 
was  still  the  financial  dependent  of  Europe.  The 
Exchange  remained  closed  four  months;  then,  on 
the  28th  of  November,  it  timidly  opened  its  doors 
and  began  trading  again  in  restricted  fashion.  Ex- 
ternally the  position  of  Wall  Street  in  November 


WALL  STREET  AND  THE  WORLD  WAR  159 

seemed  to  have  changed  little  from  its  position 
in  August.  The  great  European  exchanges  were 
still  closed;  thus  New  York  became  the  one  market 
on  which  European  holdings  could  be  "dumped." 
Europe  still  held  vast  quantities  of  American  se- 
curities on  which  it  might  be  expected  to  realize. 
Yet,  when  the  American  market  opened,  some- 
thing quite  extraordinary  took  place.  Europe,  as 
was  expected,  began  to  sell  American  securities  in 
large  amounts,  but  stocks  on  Wall  Street  did  not 
decline;  instead,  they  advanced.  The  reopening 
of  the  Stock  Exchange  really  started  one  of  the 
most  sensational  stock  "booms"  in  the  history  of 
that  institution.  Instead  of  having  a  panic  on  its 
hands,  as  many  had  freely  predicted,  Wall  Street 
discovered  that  it  had  a  bull  market  of  unprece- 
dented buoyancy.  The  real  fact  was  that,  in  the 
intervening  four  months,  the  financial  prestige 
of  the  United  States  had  been  enormously  en- 
hanced. Alone  of  all  the  great  markets  of  the 
world  Wall  Street  had  not  had  to  resort  to  the  ex- 
pedients that  commonly  accompany  panic  condi- 
tions. All  European  countries,  including  such  a 
financial  giant  as  Great  Britain,  had  declared  a 
moratorium,  or  a  temporary  suspension  of  the  legal 
obligation  to  pay  debts,  and  most  South  American 


160  THE  MASTERS  OF  CAPITAL 

countries  had  resorted  to  the  same  expedient.  No 
moratorium  had  been  declared  in  the  United  States. 
Practically  all  European  countries,  even  including 
England,  resorted  to  various  currency  expedients 
that  amounted  practically  to  inflation.  The  United 
States  resorted  to  no  such  unscientific  expedients 
as  it  had  tried  in  the  Civil  War  but  met  the  de- 
mands of  the  hour  by  supplying  an  elastic  emer- 
gency currency  under  the  terms  of  the  new  Federal 
Reserve  Act. x  But  certain  developments  even  more 
fundamental  showed  that  this  prosperity  was  not 
fictitious.  When  war  broke  out,  the  United  States 
was  harvesting  the  greatest  wheat  crop  in  its  his- 
tory, and  at  the  same  time  the  other  great  wheat 
countries  were  showing  a  smaller  production.  The 
closing  of  the  Dardanelles  kept  Russia's  wheat 
from  reaching  its  market.  All  the  world  now  began 
to  bid  for  America's  food  supply,  a  demand  im- 
mediately evidenced  in  the  startling  increase  in  our 
export  statistics.  Meanwhile  the  allied  nations  be- 
gan scouring  the  United  States  for  all  kinds  of  war 
supplies.  They  found  little  in  the  way  of  guns  or 
ammunition,  but  they  did  find  industrial  plants 

1  Congress  still  further  facilitated  the  issue  of  emergency  currency 
by  amending  the  Federal  Reserve  Act.  At  the  same  time  clear- 
ing-house associations  in  the  larger  cities  arranged  for  the  issuing 
of  certificates. 


WALL  STREET  AND  THE  WORLD  WAR  161 

far  greater  than  those  of  any  other  country  which 
could  be  very  soon  transformed  into  huge  am- 
munition factories.  War  orders  for  all  kinds  of 
munitions  started  these  plants  going  twenty-four 
hours  a  day,  while  orders  for  clothing  and  other 
indispensable  materials  of  war  put  new  life  into 
such  great  industrial  regions  as  New  England. 
The  result  was  a  huge  balance  of  trade  in  favor  of 
the  United  States.  The  gold  supply  of  Europe  be- 
gan to  find  its  way  into  the  coffers  of  Wall  Street, 
a  movement  that  was  continuous  until  1917,  when, 
of  the  approximately  $8,500,000,000  outstanding, 
nearly  $3,000,000,000  was  ultimately  deposited  in 
American  safety  vaults. 

In  the  early  days  of  the  war  England  had  prac- 
tically abdicated,  for  the  time  being,  the  position 
of  international  banker  which  she  had  held  for  a 
hundred  years.  In  a  single  year  Lombard  Street, 
up  to  the  cataclysm  of  1914,  had  invested  over 
a  billion  dollars  in  new  securities,  domestic  and 
foreign.  Lombard  Street  had  largely  financed  the 
building  of  American  railroads,  had  contributed 
greatly  to  the  financing  of  American  enterprises 
of  all  kinds,  had  been  a  large  purchaser  of  govern- 
ment and  municipal  bonds,  not  only  in  the  United 
States,  but  in  South  American  countries.  That 


162  THE  MASTERS  OF  CAPITAL 

familiar  annual  phenomenon  in  the  United  States, 
known  as  "moving  the  crops,"  had  been  made 
possible  for  many  years  with  credits  supplied  by 
England.  But  in  the  early  part  of  1915,  the  Brit- 
ish Government  vetoed  all  operations  of  this  kind 
and  informed  the  bankers  that  their  resources  must 
be  used  exclusively  for  war  purposes.  What  mar- 
ket could  thus  step  into  the  position  of  interna- 
tional banker  which  England  by  government  fiat 
had  surrendered?  Two  years  before,  any  sugges- 
tion that  Wall  Street  could  do  this  would  have  been 
regarded  as  absurd;  yet  the  American  market 
adjusted  itself,  to  this  position  with  comparative 
ease.  It  not  only  supplied  home  demands  for 
ready  money,  but  began  making  loans  aggregating 
hundreds  of  millions  to  Canada,  Switzerland, 
Norway,  Sweden,  and  the  South  American  re- 
publics. Wall  Street  bought  the  bond  issues  of 
Paris,  Bordeaux,  and  Lyons,  and  even  provided 
funds  for  international  trade.  Soon  it  had  to  meet 
new  demands. 

Up  to  1914,  Wall  Street  had  played  little  part 
in  financing  foreign  governments,  its  activities  in 
this  direction  being  limited  almost  to  lending  Great 
Britain  $200,000,000  at  the  time  of  the  South 
African  War  and  Japan  $50,000,000  at  the  time 


WALL  STREET  AND  THE  WORLD  WAR  163 

of  the  Russian  War.  But  as  the  war  orders  of  the 
Allies  began  flooding  our  markets,  Great  Britain 
and  France  attempted  to  pay  for  their  purchases 
with  cash,  an  expedient  which  drove  British  ex- 
change up  to  a  point  which  it  had  never  reached 
in  the  history  of  the  New  York  market.  It  soon 
became  evident  that,  if  the  United  States  was  to 
do  business  with  the  Allies  on  this  huge  scale,  some 
other  method  must  be  adopted  for  settling  the 
account.  What  this  method  should  be  was  clear. 
Great  Britain  had  built  up  her  foreign  trade  largely 
by  lending  to  her  customers  the  money  with  which 
they  purchased  the  goods.  It  was  evident  that  we 
should  have  to  do  the  same  thing.  The  simplest 
way  for  the  British  and  French  Governments  to 
establish  credits  in  the  United  States  with  which  to 
pay  for  war  supplies  would  be  to  sell  their  bonds  in 
our  markets.  The  money  obtained  from  sales,  when 
deposited  in  American  banks,  could  then  be  drawn 
upon  for  settlements.  Simple  as  this  device  might 
seem  in  theory,  it  involved  what  seemed  in  1915 
to  be  insuperable  difficulties.  American  investors 
had  never  shown  any  great  eagerness  to  purchase 
government  securities,  excepting  their  own.  There 
really  existed  no  public  market  for  such  invest- 
ments, in  the  sense  that  such  a  market  had  for  so 


164  THE  MASTERS  OF  CAPITAL 

long  existed  in  England,  France,  and  other  coun- 
tries. Some  of  our  supersensitive  government 
officials  at  first  believed  that  such  an  operation 
would  be  a  violation  of  neutrality  and  a  consider- 
able pro-German  element  lifted  up  their  voices  in 
protest.  There  were  others  who  questioned  the 
soundness  of  the  investment:  the  war  threatened 
world-wide  bankruptcy,  and  there  was  a  fear  that 
even  so  powerful  a  nation  as  Great  Britain  might 
not  be  able  to  pay  her  obligations.  Nevertheless, 
in  the  latter  part  of  1915,  a  distinguished  Anglo- 
French  mission  arrived  in  New  York  for  the  pur- 
pose of  floating  an  American  loan.  The  sum  sug- 
gested, $1,000,000,000,  staggered  Wall  Street;  no 
Government  had  ever  floated  a  foreign  loan  of 
such  proportions.  In  accordance  with  the  advice  of 
American  bankers  the  amount  was  cut  to  $500,000,- 
000,  and  this  was  disposed  of  successfully.  From 
now  on,  all  the  purchases  of  the  British  and  French 
were  paid  for  in  this  way.  After  this  credit  was  ex- 
hausted, these  Governments  continued  to  borrow  in 
Wall  Street,  usually  pledging  American  securities. 
Not  only  did  England  and  France  pay  for  their 
supplies  with  money  furnished  by  Wall  Street,  but 
they  made  their  purchases  through  the  same  me- 
dium. As  related  in  a  previous  chapter,  the  house 


WALL  STREET  AND  THE  WORLD  WAR  165 

of  Morgan  has  always  maintained  close  and  con- 
fidential relations  with  the  British  Government 
and  the  British  public.  The  necessity  of  buying 
materials  by  the  billions  in  the  United  States  soon 
produced  a  state  of  chaos  in  London.  Contract 
hunters  and  contract  jobbers  pounced  upon  the 
British  War  Office;  all  kinds  of  irresponsible  per- 
sons, American  and  European,  obtained  contracts 
for  speculative  purposes.  Unless  disaster  was  to 
result,  it  was  evidently  necessary  to  select  some 
trustworthy  agency  in  this  country  which  could 
be  depended  upon  to  mobilize  American  indus- 
try, place  the  European  orders  in  the  right  quar- 
ters, and  attend  to  all  the  details.  Inevitably  the 
house  of  Morgan  was  selected  for  this  important 
task.  Thus  the  war  had  given  Wall  Street  an 
entirely  new  role.  Hitherto  it  has  been  exclusively 
the  headquarters  of  finance;  now  it  became  the 
greatest  industrial  mart  the  world  had  ever  known. 
In  addition  to  selling  stocks  and  bonds, '  financ- 
ing railroads,  and  performing  the  other  tasks  of  a 
great  banking  center,  Wall  Street  began  to  deal  in 
shells,  cannon,  submarines,  blankets,  clothing,  shoes, 
canned  meats,  wheat,  and  the  thousands  of  other 
articles  needed  for  the  prosecution  of  a  great  war. 
This  new  function  brought  to  the  front  an  American 


166  THE  MASTERS  OF  CAPITAL 

business  man  who  had  hitherto  been  practically 
unknown.  In  looking  for  the  man  best  quali- 
fied to  conduct  this  purchasing  campaign  the 
Morgan  firm  discovered  Edward  R.  Stettinius, 
the  president  of  the  Diamond  Match  Company. 
Stettinius  in  turn  searched  American  industry 
for  the  men  best  qualified  to  assist  him  in  his  gi- 
gantic task,  with  the  result  that  he  got  together  a 
force  of  175,  who  organized  themselves  into  a  de- 
partment known  humorously  as  the  "S.O.S. "  — 
or  "Slaves  of  Stettinius."  In  a  short  time  this 
group  found  themselves  purchasing  supplies  at  the 
rate  of  $10,000,000  a  day.  To  a  considerable  ex- 
tent the  materials  in  which  this  agency  dealt  had 
never  been  made  in  the  United  States  before,  at 
least  in  appreciable  quantities.  They  had  to  ex- 
tend on  a  tremendous  scale  such  munitions  fac- 
tories as  already  existed  and  to  construct  hun- 
dreds of  entirely  new  plants.  American  industry 
adapted  itself  to  the  new  demands  speedily  and 
satisfactorily,  and  many  concerns  which  had  never 
made  munitions  of  any  kind  were  soon  turning 
them  out  in  perfect  shape.  So  successfully  was  the 
work  done  that  up  to  September,  1917,  the  Mor- 
gan firm  had  bought  more  than  $3,000,000,000  in 
merchandise  and  munitions  and  had,  besides  this, 


WALL  STREET  AND  THE  WORLD  WAR  167 

marketed  from  $2,000,000,000  to  $3,000,000,000  of 
American  securities  which  had  formerly  been  held 
by  European  investors. 

With  one  American  captain  of  industry  the  Brit- 
ish Government  dealt  directly.  He  was  a  mau 
whose  name  has  already  figured  in  this  narrative. 
Indeed,  next  to  J.  Pierpont  Morgan,  the  American 
business  man  who  was  best  known  in  England 
was  Charles  M.  Schwab.  England  understood  even 
better  than  Americans  the  proportions  of  the  Beth- 
lehem Steel  Company  and  the  manufacturing  genius 
of  its  head.  When  Kitchener  became  Minister 
of  War,  one  of  his  first  acts  was  to  cable  Schwab 
asking  him  to  take  the  next  boat  for  England.  In 
a  few  days  Schwab  and  Kitchener  were  closeted  at 
the  British  War  Office.  The  Secretary's  demands 
were  to  the  point.  How  many  shells  could  Schwab 
supply?  A  million?  Yes.  How  long  would  it  take 
him?  Ten  months.  Could  Schwab  furnish  any 
guns?  Yes,  and  quickly.  In  this  way  Kitchener 
rehearsed  all  his  requirements  and  Schwab  pledged 
all  the  capacity  of  the  Bethlehem  Steel  plant.  At 
the  end  of  several  days'  conferences  Kitchener  ap- 
proached a  delicate  point.  He  had  only  one  anxiety 
about  the  Bethlehem  Company,  he  said,  and  that 
was  that  German  interests  might  purchase  it. 


168  THE  MASTERS  OF  CAPITAL 

Schwab  immediately  offered  to  sign  an  agreement 
that  the  Bethlehem  Company  would  not  be  sold  to 
any  one  so  long  as  it  had  any  British  contracts  under 
way.  And  so  this  American  manufacturer  with  the 
German  name  became  one  of  the  strongest  indus- 
trial allies  of  the  British  Government.  According  to 
the  popular  estimate  he  shipped  not  far  from  $300,- 
000,000  worth  of  war  materials  to  England  in  less 
than  two  years.  To  do  this  he  so  increased  his 
facilities  that  the  Bethlehem  Company  presently 
became  a  larger  munitions  plant  than  the  Krupps, 
and  Schwab's  shipyards  alone  had  a  capacity  for 
turning  out  a  larger  tonnage  than  all  the  shipyards 
in  Germany.  One  of  his  particularly  interesting 
feats  was  the  manufacture  of  twenty  submarines, 
which  were  sent  in  parts  to  Canada,  where  they  were 
pieced  together  and  sent  across  the  Atlantic  under 
their  own  power.  A  year  or  so  afterward  Ger- 
many sent  the  submarine  Deutschland  to  the  United 
States  and  widely  advertised  the  performance  as 
something  unprecedented ! 

Valuable  as  all  this  work  was  in  promoting  the 
cause  of  the  Allies,  it  had  one  result  that  was  still 
more  important.  For  it  prepared  financial  America 
for  war.  When  Congress  declared  war  on  April 
6,  1917,  America,  as  a  nation,  had  made  little 


WALL  STREET  AND  THE  WORLD  WAR  169 

preparation  for  participating  in  the  great  conflict. 
We  had  an  army  only  in  skeleton;  we  had  a  navy 
efficient  in  its  personnel  and  in  its  ships  but  en- 
tirely inadequate  for  the  crisis;  we  had  hardly  any 
mercantile  marine.  In  only  one  part  of  the  United 
States  had  there  been  any  real  preparedness,  and 
that  was  the  part  which  had  for  decades  been  per- 
haps the  most  unpopular  section  of  the  country. 
From  August,  1914,  Wall  Street  had  displayed 
an  attitude  that  compares  well  with  those  ele- 
ments in  American  life  which  had  viciously  assailed 
business  and  industry.  With  the  exception  of  one 
or  two  Jewish-German  banking  houses,  its  sym- 
pathies had  been  enthusiastically  with  the  Allies. 
And  the  part  which  it  had  played  in  financing  the 
Allies  laid  the  foundations  for  the  work  it  did  in  the 
American  period  of  participation.  The  outbreak 
in  1914  had  produced  the  wildest  chaos  in  Euro- 
pean business  and  finance:  stocks  had  tumbled, 
money  rates  had  gone  up,  industry  had  ceased  as 
though  stricken  with  paralysis,  and  general  dis- 
solution had  been  prevented  only,  as  we  have  seen, 
by  resorting  to  a  moratorium.  But  no  such  de- 
moralization seized  Wall  Street  when  the  United 
States  declared  war.  Instead  of  falling,  the  stock 
market  advanced  —  a  movement  generally  hailed 


170  THE  MASTERS  OF  CAPITAL 

as  a  fair  augury  of  victory.  Never  had  America 
attained  so  sound  and  so  preeminent  a  financial  po- 
sition. In  two  years  we  had  ceased  to  be  a  debt- 
or nation  and  now  had  Europe  deeply  in  our  debt. 
We  had  lent  foreign  Governments,  bankers,  and 
merchants  not  far  from  $2,000,000,000;  yet  so 
plentiful  was  money  in  New  York  that  the  invest- 
ment bankers  complained  because  they  could  not 
find  enough  securities  to  supply  their  customers. 
Of  the  $4,000,000,000  American  securities  esti- 
mated to  have  been  held  in  England  and  France 
in  1914,  we  had  purchased  all  but  $1,000,000,000, 
and  of  this  $300,000,000  had  been  pledged  by  the 
British  and  French  Governments  as  securities  for 
loans,  while  the  remaining  $700,000,000  lay  in  the 
government  exchequers  for  similar  use  as  occa- 
sion should  arise.  Thus  there  was  no  longer  any 
danger  that  these  stocks  and  bonds  would  be  sud- 
denly unloaded  on  the  American  market  with  dis- 
astrous results.  At  the  beginning  of  the  war  our 
gold  holdings  amounted  to  $1,887,000,000,  while 
by  December  1,  1917,  they  had  grown  to  $2,563,- 
000,000.  Moreover,  there  was  no  likelihood  that 
Europe  could  draw  this  away. 

In  recommending  a  declaration  of  war,  President 
Wilson  said  that  we  should  extend  to  the  allied 


WALL  STREET  AND  THE  WORLD  WAR  171 

powers  "  the  most  liberal  financial  credits,  in  order 
that  our  own  resources  may  so  far  as  possible 
be  added  to  theirs."  At  first  it  was  thought  that 
perhaps  our  chief  help  to  the  Allies  would  be  fi- 
nancial and  industrial.  There  were  Germans,  more 
enlightened  than  the  Prussian  militarists  and  dip- 
lomats, who  did  not  regard  such  assistance  with 
indifference.  "We  are  mad,"  said  Albert  Ballin, 
the  creator  of  the  German  mercantile  marine,  in 
1917;  "we  have  done  a  disastrous  thing,  a  thing 
which  will  throw  its  shadow  over  our  economic  life 
for  a  generation.  How  are  we  to  resume  our  for- 
eign trade  in  the  face  of  an  Anglo-Saxondom  which 
loathes  and  must  loathe  our  presence  among  them? 
All  the  military  victories  and  all  the  wild  will- 
of-the-wisps  about  Hamburg  to  Bagdad  will  not 
help  us. " 

"Almost  uncanny"  was  the  comment  of  a  Lon- 
don observer  on  the  quiet  with  which  Wall  Street 
accepted  the  declaration  of  war.  But  events  had 
not  progressed  far  when  it  became  apparent  that 
this  attitude  was  justified. 

The  way  in  which  America's  entrance  first  tan- 
gibly affected  the  situation  was  that  she  imme- 
diately took  over  the  burden  which  Great  Britain 
had  been  carrying  of  financing  the  Allies.  For 


172  THE  MASTERS  OF  CAPITAL 

two  and  a  half  years  Great  Britain  had  not  only 
met  her  own  expenditures,  but  had  made  advances 
on  a  huge  scale  to  France,  Italy,  Russia,  Belgium, 
Serbia,  and  the  other  Entente  combatants.  The 
United  States  not  only  assumed  these  responsibili- 
ties, but  began  advancing  enormous  sums  to  Great 
Britain  herself.  These  were  not  subsidies,  such 
as  Pitt  had  given  to  England's  allies  in  the  Na- 
poleonic wars;  they  were  loans.  In  reality,  the 
United  States  placed  its  credit  at  the  disposal  of 
its  fellow  combatants.  It  sold  its  own  bonds  in 
the  American  market,  advanced  the  money  so  ob- 
tained to  the  European  powers,  taking  in  exchange 
their  bonds  at  the  same  rate  of  interest.  The  prac- 
tical outcome  of  the  operation  was  to  save  Eng- 
land, France,  and  the  other  borrowers  great  sums 
in  interest.  The  several  acts  authorizing  American 
bond  issues  contained  provisions  empowering  the 
Treasury  Department  to  make  these  loans  to  for- 
eign governments;  yet  probably  few  imagined  in 
April,  1917,  that  these  advances  would  ever  be 
so  large.  The  mere  fact  that  the  United  States, 
besides  spending  enormous  sums  on  its  own  mili- 
tary preparations,  was  able  to  lend  nearly  $10,000,- 
000,000  to  European  Governments  in  little  less 
than  two  years,  gives  some  idea  of  the  resources 


WALL  STREET  AND  THE  WORLD  WAR  173 

which  this  country  brought  to  bear  in  the  Euro- 
pean conflict.  Despite  these  almost  unimagin- 
able expenditures,  the  nation,  judging  from  all  ex- 
ternal signs,  was  suffering  no  discomforts,  hard- 
ly any  inconveniences,  and  there  were  no  indica- 
tions that  the  people  could  not  withstand  the 
strain  indefinitely. 

The  fact  was  that  financial  America  in  1919 
was  an  entirely  different  nation  from  that  of  1914. 
The  successive  bond  issues  had  transformed  us 
into  a  nation  of  investors.  Despite  the  power 
which  American  finance  had  developed  in  the 
period  of  neutrality,  there  were  many  pessimists 
in  1917  who  declared  that  the  first  popular  Liberty 
Loan  for  $2,000,000,000  could  never  succeed.  The 
American  people,  it  was  urged,  were  not  thrifty; 
they  had  not  developed  the  habit  of  purchas- 
ing government  securities;  floating  bond  issues  in 
the  United  States  had  always  been  almost  exclu- 
sively a  banking  undertaking.  This  statement  was 
not  quite  historically  correct.  Indeed,  the  methods 
of  popular  subscription  which  had  proved  so  success- 
ful in  England  were  largely  an  American  invention. 
The  first  man  who  used  somewhat  spectacular 
.  methods  for  selling  government  bonds  to  small 
holders  was  Jay  Cooke,  the  great  financier  of  the 


174  THE  MASTERS  OF  CAPITAL 

Civil  War.  Cooke's  most  remarkable  feat  —  per- 
haps the  most  remarkable  of  the  kind  until  the 
outbreak  of  the  European  War  —  was  his  success 
in  selling  nearly  $400,000,000  of  the  five-twenty 
bonds  of  1863.  In  order  to  market  this  —  as  de- 
scribed in  a  preceding  chapter  —  Cooke  enlisted 
a  force  of  from  two  thousand  to  three  thousand 
canvassers,  who  visited  all  the  towns  and  country 
districts  of  the  United  States  and  made  personal 
solicitations  from  door  to  door,  using  handbills, 
posters,  brass  bands,  and  parades  for  advertis- 
ing purposes.  Energetic  as  Jay  Cooke  was,  how- 
ever, it  required  a  persistent  campaign  of  this  kind 
finally  to  sell  the  issue;  moreover,  the  bonds 
brought  considerably  less  than  par  and  the  inter- 
est rate  —  six  per  cent  —  was  high.  This  achieve- 
ment had  entirely  passed  out  of  the  public  mind 
by  1917,  when  the  Secretary  of  the  Treasury  be- 
gan raising  $2,000,000,000  by  similarly  intensive 
methods.  At  first  the  gloomy  prognostications  of 
those  who  foretold  failure  seemed  justified.  Wash- 
ington made  the  mistake  of  announcing  that  the 
public  was  rapidly  oversubscribing  the  bonds,  an 
announcement  that  naturally  somewhat  cooled 
popular  enthusiasm.  The  financial  houses  of  Wall 
Street,  however,  presently  abandoned  routine  busi- 


WALL  STREET  AND  THE  WORLD  WAR  175 

ness  and  placed  all  their  machinery  behind  the 
loan.  In  the  last  few  days  the  subscriptions  came 
in  at  a  tremendous  rate,  the  result  being  that  the 
public  which  had  been  asked  for  $2,000,000,000 
offered  the  Government  over  $3,000,000,000.  The 
succeeding  loans,  for  rapidly  increasing  amounts, 
were  likewise  phenomenally  successful,  the  climax 
coming  in  November,  1918,  on  the  eve  of  the 
armistice,  when  the  American  people,  as  the  re- 
sult of  a  three  weeks'  campaign,  subscribed  nearly 
$7,000,000,000  in  a  single  issue.  This  is  the  largest 
loan  which  history  records. 

The  united  efforts  of  the  whole  American  peo- 
ple, ranging  all  the  way  from  the  great  Wall  Street 
banking  houses  to  vaudeville  performers,  made  these 
loans  successful.  They  indicated  that  Wall  Street 
was  no  longer  a  circumscribed  geographical  dis- 
trict, but  that  —  assuming  that  the  phrase  compre- 
hends the  financial  resources  of  the  United  States 
—  it  included  every  town,  every  farm,  every  cross- 
roads in  the  country.  One  of  the  most  satisfac- 
tory by-products  of  the  war,  indeed,  was  the  fact 
that  it  brought  together  many  elements  in  our 
national  life  that  had  hitherto  worked  at  cross 
purposes.  It  even  diminished  somewhat  the  wide- 
spread unpopularity  of  Wall  Street.  That  the 


176  THE  MASTERS  OF  CAPITAL 

money  power  in  the  United  States  has  many  sins 
to  answer  for  no  rational  person  denies;  happily  for 
the  forces  of  great  wealth,  the  war  gave  them  an 
opportunity  to  show  that  they,  too,  were  American 
first  of  all  and  that  they  placed  the  prestige  and 
dignity  of  their  country  above  all  personal  sor- 
did considerations.  Only  a  few  transparent  dema- 
gogues and  pro-Germans  raised  the  cry  that  the 
struggle  was  "Wall  Street's  War. "  The  Washing- 
ton Administration  at  first  showed  some  suspicion 
of  the  "interests,"  and  for  a  time  it  attempted  to 
reorganize  its  departments  and  prepare  for  the 
great  struggle  without  the  assistance  of  Big  Busi- 
ness. This  unfriendly  disposition  proved  almost 
disastrous  to  the  cause.  It  showed  most  conspicu- 
ously in  the  matter  of  building  ships  and  airplanes 
—  two  things  which  seemed  to  be  absolutely  in- 
dispensable to  success.  Both  these  departments  for 
a  year  were  conducted  by  men  who  were  entirely 
inadequate  to  the  task.  England  had  undergone 
a  similar  experience  in  the  early  days;  she,  too, 
when  the  war  started,  had  found  that  all  her 
big  departments  were  headed  by  politicians,  men 
who  had  little  training  in  practical  life  and  who 
were  thus  incompetent  to  transact  that  great- 
est of  all  modern  enterprises  —  war.  Gradually 


WALL  STREET  AND  THE  WORLD  WAR  177 

Great  Britain  weeded  out  these  men,  replacing 
them  for  the  most  part  by  business  leaders.  Ul- 
timately President  Wilson  adopted  the  same  view. 
Strangely  enough,  one  of  the  first  appointees  to 
go  from  Wall  Street  to  an  important  Washing- 
ton post  belonged  to  precisely  the  class  which 
had  incurred  the  President's  distrust.  Bernard 
Baruch  all  his  life  had  been  primarily  a  Wall  Street 
operator  —  a  very  successful  one,  it  is  true,  but 
a  man  who  had  had  absolutely  no  business  train- 
ing in  the  "constructive "  sense.  Even  Wall  Street 
itself  gasped  when  it  learned  that  the  President 
had  made  Baruch  the  head  of  the  War  Industries 
Board,  and,  as  such,  the  man  who  would  do  most 
of  the  purchasing  in  this  country  for  the  United 
States  and  the  Allies.  It  is  an  evidence  of  the 
flexibility  of  the  Wall  Street  temperament  that 
Baruch,  despite  his  lack  of  practical  experience, 
made  a  success  of  his  job.  When  the  war  ended, 
this  official  was  buying  war  materials  at  the  rate 
of  $10,000,000,000  a  year  and  was  unquestionably 
the  greatest  "buyer"  the  world  has  ever  known. 

Wilson's  other  two  conspicuous  appointments 
from  Wall  Street  at  first  aroused  great  approval. 
After  the  collapse  of  the  aircraft  programme,  he 
placed  in  charge  of  this  work  John  D.  Ryan, 


178  THE  MASTERS  OF  CAPITAL 

president  of  the  Anaconda  Copper  Mining  Com- 
pany. The  result  was  the  immediate  revitalizing 
of  the  department,  although  the  war  ended  be- 
fore Ryan  had  a  chance  to  demonstrate  his  com- 
plete success.  But  perhaps  the  Wall  Street  man 
who  scored  the  greatest  'triumph  was  Charles 
M.  Schwab.  Wilson  experimented  disastrously 
for  more  than  a  year  with  the  Shipping  Board, 
the  repeated  failures  of  which  almost  disheartened 
the  American  people  and  therr  allies.  All  this 
time  there  was  one  man,  and  one  man  only,  ideal- 
ly fitted  for  the  task.  Finally  Wilson  sent  for 
the  head  of  the  Bethlehem  Steel  Company.  At 
first  Schwab  said  that  it  would  be  utterly  im- 
possible for  him  to  undertake  the  work.  Being 
pressed  for  an  explanation,  he  declared  that  he 
was  no  politician;  the  drastic  reorganization  he 
would  insist  on  making  would  be  extremely  un- 
popular. The  President  immediately  told  him 
that  he  should  have  an  absolutely  free  hand  and 
that  he  would  be  required  to  do  only  one  thing  — 
build  ships.  Schwab  still  hesitated;  the  first  step 
he  should  take,  he  informed  the  President,  would 
be  to  move  the  head  offices  of  the  Shipping  Board 
from  Washington  to  Philadelphia.  "You  can 
move  them  to  Kalamazoo,"  the  President  is 


WALL  STREET  AND  THE  WORLD  WAR  179 

reported  to  have  answered,  "if  by  doing  so  you 
can  build  ships."  This  very  satisfactory  atti- 
tude persuaded  Schwab  to  take  charge,  which  he 
did  with  his  characteristic  enthusiasm  and  ener- 
gy, and  soon  the  vessels  began  to  leave  the  ways 
in  great  numbers.  It  is  hardly  too  much  to  say 
that  Schwab's  appointment  sealed  the  fate  of 
submarine  warfare. 

Thus  Wall  Street  emerged  from  the  war  with 
greatly  enhanced  prestige.  Without  the  financial 
support  which  it  placed  at  the  Government's  dis- 
posal, without  the  mammoth  industrial  organi- 
zation which  America  had  developed  since  1865, 
the  United  States  would  have  counted  for  little 
in  the  struggle. 


APPENDIX 

EXTRACTS  FROM  CHAPTER  THREE  OF  THE  REPORT  OF  THE 
COMMITTEE  APPOINTED  PURSUANT  TO  HOUSE  RESOLU- 
TIONS 429  AND  504  TO  INVESTIGATE  THE  CONCENTRA- 
TION OF  CONTROL  OF  MONEY  AND  CREDIT  (HOUSE  REPORT 
NO.  1593,  62D  CONGRESS,  3D  SESSION,  1913) 

Section  3  —  Processes  of  Concentration 

THIS  increased  concentration  of  control  of  money  and 
credit  has  been  effected  principally  as  follows: 

First,  through  consolidations  of  competitive  or  poten- 
tially competitive  banks  and  trust  companies,  which  con- 
solidations in  turn  have  recently  been  brought  under 
sympathetic  management. 

Second,  through  the  same  powerful  interests  becom- 
ing large  stockholders  in  potentially  competitive  banks 
and  trust  companies.  This  is  the  simplest  way  of  ac- 
quiring control,  but  since  it  requires  the  largest  in- 
vestment of  capital,  it  is  the  least  used,  although  the 
recent  investments  in  that  direction  for  that  apparent 
purpose  amount  to  tens  of  millions  of  dollars  in  present 
market  values. 

Third,  through  the  confederation  of  potentially  com- 
petitive banks  and  trust  companies  by  means  of  the 
system  of  interlocking  directorates. 

Fourth,  through  the  influence  which  the  more  power- 
IB! 


182  APPENDIX 

ful  banking  houses,  banks,  and  trust  companies  have  se- 
cured in  the  management  of  insurance  companies,  rail- 
roads, producing  and  trading  corporations,  and  public 
utility  corporations,  by  means  of  stockholdings,  voting 
trusts,  fiscal  agency  contracts,  or  representation  upon 
their  boards  of  directors,  or  through  supplying  the  money 
requirements  of  railway,  industrial,  and  public  utilities 
corporations  and  thereby  being  enabled  to  participate  in 
the  determination  of  their  financial  and  business  policies. 
Fifth,  through  partnership  or  joint  account  arrange- 
ments between  a  few  of  the  leading  banking  houses, 
banks,  and  trust  companies  in  the  purchase  of  security 
issues  of  the  great  interstate  corporations,  accompanied 
by  understandings  of  recent  growth  —  sometimes  called 
"banking  ethics"  —  which  have  had  the  effect  of  effec- 
tually destroying  competition  between  such  banking 
houses,  banks,  and  trust  companies  in  the  struggle  for 
business  or  in  the  purchase  and  sale  of  large  issues  of 
such  securities. 

Section   4  —  Agents  of  Concentration 

It  is  a  fair  deduction  from  the  testimony  that  the  most 
active  agents  in  forwarding  and  bringing  about  the  con- 
centration of  control  of  money  and  credit  through  one 
or  another  of  the  processes  above  described  have  been 
and  are: 

J.  P.  Morgan  &  Co. 

First  National  Bank  of  New  York. 

National  City  Bank  of  New  York. 

Lee,  Higginson  &  Co.,  of  Boston  and  New  York. 

Kidder,  Peabody  &  Co.,  of  Boston  and  New  York. 

Kuhn,  Loeb  &  Co. 


APPENDIX  183 

Section  11  —  Interrelations  of  Members  of  the  Group 

Morgan  &  Co,  and  First  National  Bank.  —  Mr.  Mor- 
gan, head  of  the  firm  of  Morgan  &  Co.,  of  New  York, 
and  Drexel  &  Co.,  of  Philadelphia,  and  Mr.  Baker, 
head  officer  and  dominant  power  in  the  First  Nation- 
al Bank  since  shortly  after  its  organization,  have  been 
close  friends  and  business  associates  from  almost  the 
time  they  began  business.  Mr.  Morgan  testifying  as  to 
their  relations,  said  (p.  1034) : 

Q.  You  and  Mr.  Baker  have  been  old  and  close 
friends  and  associates  for  many  years,  have  you  not? 

A.     For  a  great  many  years;  yes. 

Q.     Almost  since  you  began  business? 

A.     Well,  since  1873,  at  least. 

Q.  During  that  time  your  house  has  been  of  great 
aid  to  the  First  National  Bank  in  building  up  their  great 
prosperity  and  they  have  been  of  great  aid  to  you? 

A.     I  hope  so. 

Q.     That  is  the  fact,  is  it  not? 

A.     That  is  the  fact,  I  think. 

Q.  During  that  period  you  have  made  many  pur- 
chases of  securities  jointly  and  many  joint  issues  of 
securities,  have  you  not? 

A.     Yes,  sir. 

Before  becoming  partners  in  Morgan  &  Co.,  Mr. 
Davison  and  Mr.  Lament,  two  of  the  most  active 
members  of  the  firm,  were  vice  presidents  of  the  First 
National  Bank,  and  still  remain  directors. 

Next  to  Mr.  Baker,  Morgan  &  Co.  is  the  largest  stock- 
holder of  the  First  National,  owning  14,500  shares, 
making  the  combined  holdings  of  Mr.  Baker  and  his  son 
and  Morgan  &  Co.  about  40,000  shares  out  of  100,000 


184  APPENDIX 

outstanding  —  a  joint  investment,  based  on  the  market 
value,  of  $41,000,000  in  this  one  institution. 

Three  of  the  Morgan  partners  —  Mr.  Morgan  himself, 
Mr.  Davison,  and  Mr.  Lament  —  are  directors  of  the 
First  National,  and  Mr.  Morgan  is  a  member  of  the 
executive  committee  of  four,  which  has  not,  however, 
been  active  and  has  rarely  met. 

The  First  National  has  been  associated  with  Morgan 
&  Co.  in  the  control  of  the  Bankers  Trust  Co.  As  be- 
fore stated,  when  the  company  was  organized,  its  entire 
capital  stock  was  vested  in  George  W.  Perkins,  H.  P. 
Davison,  and  Daniel  G.  Reid  as  voting  trustees.  Mr. 
Perkins  was  then  a  Morgan  partner  and  Mr.  Davi- 
son and  Mr.  Reid  were,  respectively,  vice  president  and 
a  large  stockholder  of  the  First  National.  Mr.  Davison, 
who  has  since  become  a  Morgan  partner,  and  Mr.  Reid 
have  continued  as  such  trustees.  Mr.  Perkins  has  been 
succeeded  by  the  attorney  of  the  company,  who  is  also- 
Mr.  Davison's  personal  counsel.  Mr.  Davison  and  Mr.. 
Lament,  of  the  Morgan  firm,  and  Mr.  Hine,  president,. 
Mr.  Norton,  vice  president,  and  Mr.  Hepburn,  member 
of  the  executive  committee  of  the  First  National,  are 
codirectors  of  the  Bankers  Trust  Co.,  Mr.  Hine  being, 
also  a  member  of  its  executive  committee. 

The  First  National  likewise  has  been  associated  with 
Morgan  &  Co.  in  the  control  of  the  Guaranty  Trust 
Co.,  Mr.  Baker  of  the  former  being  joined  with  Mr. 
Davison  and  Mr.  Porter  of  the  latter  a&  voting 
trustees. 

In  the  Astor  Trust  Co.,  controlled  by  Morgan  & 
Co.  through  the  Bankers  Trust  Co.,  Mr.  Baker  and  Mr. 
Hine,  chief  officers  of  the  First  National,  are  directors. 

In  the  Liberty  National  Bank,  controlled  by.  Morgan 


APPENDIX  185 

&  Co.  through  the  Bankers  Trust  Co.,  Mr.  Hine  is  also 
a  director. 

Since  its  organization  in  1894,  Mr.  Morgan  and  Mr. 
Baker  have  been  associated  as  voting  trustees  in  the 
control  of  the  Southern  Railway,  of  which,  also,  Mor- 
gan &  Co.  and  the  First  Security  Co.  are  stockholders, 
and  Mr.  Steele  of  the  former  and  George  F.  Baker,  Jr., 
and  H.  C.  Fahnestock  of  the  First  National  are  directors. 

Mr.  Morgan  and  Mr.  Baker  are  also  associated  as 
voting  trustees  in  the  control  of  the  Chicago  Great 
Western  Railway. 

Mr.  Morgan  and  Mr.  Baker  are  further  associated  as 
directors  and  members  of  the  executive  committee  of 
the  New  York  Central  Lines  and  as  directors  of  the 
New  York,  New  Haven  &  Hartford  Railroad  and  the 
Pullman  Co. 

At  Mr.  Morgan's  request,  Mr.  Baker  became  and  has 
remained  a  director  and  member  of  the  finance  com- 
mittee of  the  United  States  Steel  Corporation,  which, 
as  previously  shown,  was  organized  and  always  has 
been  dominated  by  the  former.  At  the  request  of  Mr. 
Perkins,  who,  as  a  partner  in  Morgan  &  Co.,  was  active 
in  organizing  the  International  Harvester  Co.,  Mr. 
Baker  became  a  director  of  that  company,  resigning 
only  recently. 

Mr.  Stotesbury,  of  Morgan  &  Co.,  and  Mr.  Baker  are 
associated  as  voting  trustees  in  the  control  of  the 
William  Cramp  Ship  &  Engine  Building  Co. 

In  1901  Mr.  Baker  and  associates,  cooperating  with 
Mr.  Morgan,  transferred  to  Reading  Co.  a  majority  of 
the  stock  of  the  Central  Railroad  of  New  Jersey,  there- 
by bringing  under  one  control  railroad  systems  trans- 
porting 33)^3  per  cent  of  the  anthracite  coal  moving  from 


186  APPENDIX 

the  mines  and  coal  companies  owning  or  controlling  63 
per  cent  of  the  entire  anthracite  deposits.  (Baker,  R., 
1504,  1506,  1508.) 

In  the  same  year  Mr.  Baker  cooperated  with  Mr. 
Morgan  in  transferring  to  the  Northern  Securities  Co. 
controlling  stock  interests  in  the  Northern  Pacific  and 
Great  Northern  Railways,  competitive  transcontinental 
systems. 

One  or  more  members  of  Morgan  &  Co.  and  one 
or  more  officers  or  directors  of  the  First  National  are 
associated  as  codirectors  in  the  following  additional 
corporations,  among  others: 

The  Mutual  Life  Insurance  Co.  of  New  York; 

The  anthracite  railroads,  including  the  Reading,  the 
Central  of  New  Jersey,  the  Lehigh  Valley,  the  Erie,  the 
New  York,  Susquehanna  &  Western,  and  the  New  York, 
Ontario  &  Western; 

The  Northern  Pacific  Railway,  in  which  also  Mr. 
Steele,  of  Morgan  &  Co.,  and  Mr.  Baker,  of  the  First 
National,  are  members  of  the  executive  committee; 

Adams  Express  Co.; 

American  Telegraph  &  Telephone  Co. ;  and 

The  Baldwin  Locomotive  Works. 

But  nothing  demonstrates  quite  so  clearly  the  close 
and  continuing  cooperation  between  Morgan  &  Co. 
and  the  First  National  Bank  as  their  joint  purchases 
and  underwri tings  of  corporate  securities.  Since  1903 
they  have  purchased  for  their  joint  account,  generally 
with  other  associates,  70  odd  security  issues  of  30  differ- 
ent corporations,  aggregating  approximately  $1,080,- 
000,000.  (Ex.  213,  R.,  1895 ;  Ex.  235,  R.,  2127.)  A  com- 
plete statement  of  such  joint  transactions  in  securities 
will  be  found  in  a  subsequent  part  of  this  report. 


APPENDIX  187 

It  is  thus  seen  that  through  stockholdings,  inter- 
locking directors,  partnership  transactions,  and  other 
relations,  Morgan  &  Co.  and  the  First  National  Bank 
are  locked  together  in  a  complete  and  enduring  com- 
munity of  interest.  Their  relations  in  this  regard  are, 
indeed,  a  commonplace  in  the  financial  world.  Thus, 
Mr.  Schiff  being  asked  whether  he  knew  "the  close  re- 
lations between  Messrs.  Morgan  and  the  First  National 
Bank, "  replied  "  I  do. "  (R.,  1687.) 

Morgan  &  Co.,  First  National  Bank,  and  National  City 
Bank.  —  Mr.  Stillman,  as  president,  chairman  of  the 
board  of  directors  and  largest  stockholder,  for  a  long 
time  has  held  a  position  of  dominance  in  the  National 
City  Bank  corresponding  to  Mr.  Morgan's  in  his  firm 
and  Mr.  Baker's  in  the  First  National  Bank. 

For  many  years  while  Morgan  &  Co.  and  the  First 
National  Bank  were  in  close  business  union  the  Na- 
tional City  Bank  apparently  occupied  a  position  of 
independence.  More  recently,  however,  it  has  been 
drawn  into  the  community  of  interest  existing  between 
the  two  first  named,  as  is  evidenced  by  a  series  of 
important  transactions. 

First.  Within  three  or  four  years  Morgan  &  Co. 
acquired  $1,500,000  par  value  of  the  capital  stock  of  the 
National  City  Bank,  representing  an  investment  at  the 
stock's  present  market  price  of  $6,000,000,  and  J.  P. 
Morgan,  Jr.,  became  a  director.  (Morgan,  R.,  1036, 
1075,  1076;  Davison,  R.,  1879;  Ex.  134-A.) 

Second.  In  1910  Mr.  Morgan  in  conjunction  with 
both  Mr.  Baker,  his  long-time  associate,  and  Mr.  Still- 
man, head  of  the  National  City  Bank,  purchased  from 
Ryan  and  the  Mr.  Harriman  estate  $51,000,  par  value, 


188  APPENDIX 

of  the  stock  of  the  Equitable  Life  Assurance  Society, 
paying  therefor  what  Mr.  Ryan  originally  paid  with 
interest  at  5  per  cent  —  about  $3,000,000  —  the  invest- 
ment yielding  less  than  one-eighth  of  1  per  cent.  Mr- 
Stillman  and  Mr.  Baker  each  agreed  to  take  a  one- 
fourth  interest  in  the  purchase  if  requested  to  do  so 
by  Mr.  Morgan.  No  such  request  has  yet  been  made 
by  him. 

No  sufficient  reason  has  been  given  for  this  transac- 
tion, nor  does  any  suggest  itself,  unless  it  was  the  desire 
of  these  gentlemen  to  control  the  investment  of  the 
$504,000,000  of  assets  of  this  company,  or  the  disposi- 
tion of  the  bank  and  trust  company  stocks  which  it  held 
and  was  compelled  by  law  to  sell  within  a  stated  time. 
Mr.  Morgan  was  interrogated  as  follows  on  this  subject 
(R.,  1068,  1069,  1071) : 

Q.  You  may  explain,  if  you  care  to,  Mr.  Morgan, 
why  you  bought  from  Messrs.  Ryan  and  Harriman 
$51,000  par  value  of  stock  that  paid  only  $3710  a  year, 
for  approximately  $3,000,000,  that  could  yield  you  only 
one-eighth  or  one-ninth  of  1  per  cent. 

A.  Because  I  thought  it  was  a  desirable  thing  for  the 
situation  to  do  that. 

Q.  That  is  very  general,  Mr.  Morgan,  when  you 
speak  of  the  situation.  Was  not  that  stock  safe  enough 
in  Mr.  Ryan's  hands? 

A.  I  suppose  it  was.  I  thought  it  was  greatly  im- 
proved by  being  in  the  hands  of  myself  and  these  two 
gentlemen,  provided  I  asked  them  to  do  so. 

Q.  How  would  that  improve  the  situation  over  the  sit- 
uation that  existed  when  Mr.  Ryan  and  Mr.  Harrimaa 
held  the  stock? 

A.    Mr.  Ryan  did  not  have  it  alone. 


APPENDIX  189 

Q.  Yes;  but  do  you  not  know  that  Mr.  Ryan  origi- 
nally bought  it  alone  and  Mr.  Harriman  insisted  on 
having  him  give  him  half? 

A.  I  thought  if  he  could  pay  for  it  that  price  I  could. 
I  thought  that  was  a  fair  price. 

Q.     You  thought  it  was  good  business,  did  you? 

A.     Yes. 

Q.  You  thought  it  was  good  business  to  buy  a  stock 
that  paid  only  one-ninth  or  one- tenth  of  1  per  cent  a  year? 

A.     I  thought  so. 

Q.  The  normal  rate  of  interest  that  you  can  earn  on 
money  is  about  5  per  cent,  is  it  not? 

A.     Not  always;  no. 

Q.     I  say,  ordinarily. 

A.     I  am  not  talking  about  it  as  a  question  of  money. 

Q.  The  normal  rate  of  interest  would  be  from  4  to  5 
per  cent,  ordinarily,  would  it  not? 

A.     Well? 

Q.  Where  is  the  good  business,  then,  in  buying  a 
security  that  only  pays  one-ninth  of  1  per  cent? 

A.  Because  I  thought  it  was  better  there  than  it 
was  where  it  was.  That  is  all. 

Q.  Was  anything  the  matter  with  it  in  the  hands  of 
Mr.  Ryan? 

A.     Nothing. 

Q.  In  what  respect  would  it  be  better  where  it  is 
than  with  him? 

A.     That  is  the  way  it  struck  me. 

Q.     Is  that  all  you  have  to  say  about  it? 

A.     That  is  all  I  have  to  say  about  it. 

Q.     You  care  to  make  no  other  explanation  about  it? 

A.     No. 


190  APPENDIX 

Q.  I  do  not  understand  why  you  bought  this  com* 
pany. 

A.  For  the  very  reason  that  I  thought  it  was  the 
thing  to  do,  as  I  said. 

Q.     But  that  does  not  explain  anything. 

A.     That  is  the  only  reason  I  can  give. 

Q.     It  was  the  thing  to  do  for  whom? 

A.  That  is  the  only  reason  I  can  give.  That  is  the 
only  reason  I  have,  in  other  words.  I  am  not  trying  to 
keep  anything  back,  you  understand. 

Q.  I  understand.  In  other  words,  you  have  no 
reason  at  all? 

A.  That  is  the  way  you  look  at  it.  I  think  it  is  a 
very  good  reason. 

Mr.  Baker  was  asked  the  following  questions  (R., 
1466,  1467,  1469,  1470,  1535): 

Q.  Coming,  now,  to  this  transaction  of  the  Equitable 
Life.  You  remember  when  Mr.  Morgan  acquired  the 
control  from  Messrs.  Ryan  and  Harriman,  do  you  not? 

A.     Yes,  sir. 

Q.    When  was  it? 

A.     I  could  not  tell  you  that  date. 

Q.     It  was  in  1910,  was  it  not. 

A.  If  that  is  what  you  have  in  your  record  there, 
that  is  correct,  I  suppose. 

Q.     I  think  that  is  correct.    Is  that  your  recollection? 

A.  No;  it  is  not  my  recollection;  but  it  is  on  the 
record  there. 

Q.     What  is  your  recollection? 

A.  I  know  it  was  two  or  three  years  ago.  That 
is  all. 

Q.    At  the  time  Mr.  Morgan  acquired  the  interest 


APPENDIX  191 

in  the  Equitable,  did  he  come  with  you? 
A.     Yes,  sir. 

Q.     And  with  Mr.  Stillman? 
A.    Yes. 

Q.  ...  I  want  to  ask  you  further  concerning  this 
Equitable  Life  transaction.  Do  I  correctly  understand 
that  at  the  time  Mr.  Morgan  made  the  purchase  you 
and  Mr.  Stillman  committed  yourselves  to  take  part 
of  it? 

A.     That  was  done  so  informally 

Q.     (interrupting).    Did  you? 

A.     Yes;  I  will  say  we  did. 

Q.  You  were  consulted  before  it  was  done  and  you 
agreed  to  take  a  part  of  it? 

A.     Yes. 

Q.  Then,  following  that,  about  a  year  later,  you 
were  asked  to  write  this  letter,  were  you  not,  confirming 
that  arrangement? 

A.  Yes.  Mr.  J.  P.  Morgan,  Jr.,  wrote  me  a  letter 
and  I  put  my  initials  at  the  bottom,  saying  it  was  so,  or 
something  of  that  kind. 

Q.  Referring  back,  now,  to  the  talk  you  say  you 
had  with  Mr.  Morgan  and  Mr.  Stillman  about  the  pur- 
chase of  the  Equitable  stock;  before  it  was  purchased, 
what  reason  did  Mr.  Morgan  give  for  wanting  to  take 
that  stock  from  Mr.  Ryan? 

A.  I  can  not  remember  that  he  gave  any  special 
reason,  except  that  he  thought  it  would  be  a  good  thing 
to  be  in  his  hands. 

Q.  When  he  said  he  thought  it  would  be  a  good 
thing  to  be  in  his  hands,  rather  than  in  the  hands  of  Mr. 


192  APPENDIX 

Ryan,  what  did  you  understand  that  to  mean? 

A.  I  did  not  understand  that  to  mean  much  of 
anything.  I  did  not  take  much  interest  in  it. 

Third,  about  a  year  later  Mr.  Stillman  and  Mr.  Baker, 
pursuant  to  an  understanding  between  them  and  J.  P. 
Morgan  &  Co.,  purchased  approximately  one-half  of  the 
holdings  of  the  Mutual  and  Equitable  Life  insurance 
companies  in  the  stock  of  the  National  Bank  of  Com- 
merce, amounting  altogether  to  some  42,200  shares. 
Mr.  Baker  being  a  member  of  the  finance  committee  of 
the  Mutual,  it  was  arranged  that  he  should  purchase 
the  Equitable's  stock  —  about  15,250  shares  —  and  Mr. 
Stillman  the  Mutual's.  Pursuant  to  the  understanding, 
Mr.  Stillman  turned  over  10,000  shares  to  Morgan  & 
Co.,  who  already  owned  7000  shares.  Mr.  Baker  kept 
5000  shares,  turned  over  5000  to  the  First  Security  Co., 
and  distributed  the  rest  among  various  persons;  3000 
shares  were  allotted  by  Mr.  Stillman  and  Mr.  Baker  to 
Kuhn,  Loeb  &  Co. 

Mr.  Baker  testified  as  follows  regarding  this  trans- 
action (R.,  1463,  1464) : 

Q.  Was  the  purchase  of  that  stock  the  result  of  an 
understanding  between  you  and  him  and  others? 

A.     Yes,  sir. 

Q.     Who  were  the  others? 

A.     Some  of  the  people  at  Mr.  Morgan's. 

Q.     Who? 

A.  I  can  not  remember  whether  it  was  Mr.  Morgan 
himself,  or  Jack  —  I  mean  Mr.  J.  P.  Morgan,  Jr.  —  or 
some  others;  I  do  not  remember. 

Q.  Then  the  purchase  altogether  amounted  to  about 
42,200  shares,  did  it  not,  from  the  two  companies? 


APPENDIX  193 

A.     Yes. 

Q.  What  arrangement  was  there  as  to  the  distribu- 
tion of  that  stock;  how  it  should  be  distributed  between 
Messrs.  Morgan  and  Stillman  and  yourself? 

A.  I  can  not  remember  that  there  was  any  in  par- 
ticular. I  disposed  of  mine  as  I  have  told  you,  and  that 
is  as  near  as  I  can  remember.  I  can  account  for  the 
bulk  of  it. 

Q.  Was  there  or  was  there  not  talk  about  the 
distribution  of  that  42,200  shares? 

A.     There  may  have  been,  but  I  do  not  remember. 

Q.     You  do  not  remember  whether  there  was  or  not? 

A.     No,  sir. 

Q.  And  you  can  not  tell  what  Messrs.  Morgan  & 
Co.  agreed  to  take  before  the  stock  was  bought? 

A.  I  do  not  know  whether  they  agreed  to  take  any. 
I  think  Mr.  Morgan  took  10,000  shares,  probably,  from 
Mr.  Stillman. 

Q.  Before  you  bought  the  stock  between  you,  these 
three  interests,  was  there  not  some  understanding,  and 
if  so,  what  was  it,  as  to  the  way  it  should  be  divided  up? 

A.  Possibly  there  was,  but  I  do  not  remember 
clearly  enough  to  answer  the  question  intelligently  to 
you.  I  am  willing  to  admit,  if  it  is  of  any  interest  to 
the  committee,  that  there  was  an  understanding  and 
that  we  were  to  take  it  for  joint  account. 

Q.  The  committee  would  rather  not  have  any  ad- 
missions that  do  not  agree  with  your  recollection,  if  you 
have  no  recollection  of  it  at  all. 

A.  I  have  not  a  definite  enough  recollection  to  state 
under  oath. 

Q.  Is  it  your  impression  that  there  was  an  under- 
standing that  it  was  purchased  for  joint  account? 


194  APPENDIX 

A.     Yes. 

Q.     Between  those  three  interests? 
A.     Yes;  that  it  would  be  divided.     I  do  not  think 
they  were  for  joint  account. 

The  National  City  Bank,  the  First  National,  and 
Morgan  &  Co.  now  have  two  representatives  each  on  the 
board  of  directors  of  the  National  Bank  of  Commerce 
—  Mr.  Vanderlip,  president,  and  Mr.  Simonson,  vice 
president,  of  the  first  named;  Mr.  Baker,  chairman  of 
the  board,  and  Mr.  Hine,  president  of  the  second;  and 
H.  P.  Davison  and  J.  P.  Morgan,  Jr.,  of  the  last;  whilst 
six  of  its  finance  committee  of  nine  (it  has  no  executive 
committee)  consist  of  Mr.  Vanderlip  and  Mr.  Simonson 
of  the  National  City  Bank,  Mr.  Hine  of  the  First  Na- 
tional, Mr.  Wiggin,  president  of  the  Chase  National, 
which,  as  appeared  above,  has  for  some  years  been 
controlled  by  the  First  National,  and  Mr.  Davison  and 
Mr.  J.  P.  Morgan,  Jr.,  of  J.  P.  Morgan  &  Co. 

Fourth,  during  the  same  period  in  which  occurred  the 
three  transactions  just  described  —  that  is,  within  the 
last  four  years  —  the  National  City  Bank,  the  First 
National,  and  Morgan  &  Co.  (excluding  issues  in  which 
there  were  other  parties  to  the  joint  account)  have 
purchased  or  underwritten  in  joint  account  thirty-six 
security  issues  (including  the  impending  issue  of  the 
Interborough  Rapid  Transit  Co.)  amounting  to  $484,- 
456,000  and  they,  with  other  associates,  thirty-one  ad- 
ditional issues  amounting  to  $548,027,000,  making  in 
all  sixty-seven  issues  aggregating  over  $1,000,000,000 
in  which  the  First  National,  the  National  City  Bank, 
and  Morgan  &  Co.  were  joint  purchasers  or  under- 
writers. Further,  in  the  same  period,  the  National 


APPENDIX  195 

City  Bank  and  Morgan  &  Co.  and  other  associates, 
not  including  the  First  National,  have  purchased  or 
underwritten  in  joint  account  twenty  security  issues 
aggregating  $333,385,000.  On  the  other  hand,  in  the  ten 
years  prior  to  1908  the  National  City  Bank  joined  with 
Morgan  &  Co.  in  but  one  purchase  or  underwriting  of 
securities  and  with  the  First  National  in  not  one. 

The  acquisition  by  Morgan  &  Co.  of  a  large  block  of 
stock  of  the  National  City  Bank  with  representation 
upon  its  board  of  directors,  and  the  transactions  that 
followed,  in  which  those  two  institutions  and  the  First 
National  Bank  were  joined,  as  above  set  forth,  show  a 
unison  of  interest  and  a  continuity  of  cooperation  be- 
tween the  three  such  as  for  many  years  previously  had 
existed  between  two  of  them  —  Morgan  &  Co.  and  the 
First  National. 

Combined  power  of  Morgan  &  Co.,  the  First  National, 
and  National  City  Banks.  —  In  earlier  pages  of  the 
report  the  power  of  these  three  great  banks  was  sepa- 
rately set  forth.  It  is  now  appropriate  to  consider 
their  combined  power  as  one  group. 

First,  as  regards  banking  resources : 

The  resources  of  Morgan  &  Co.  are  unknown;  its 
deposits  are  $163,000,000.  The  resources  of  the  First 
National  Bank  are  $150,000,000  and  those  of  its  ap- 
pendage, the  First  Security  Co.,  at  a  very  low  estimate, 
$35,000,000.  The  resources  of  the  National  City  Bank 
are  $274,000,000;  those  of  its  appendage,  the  National 
City  Co.,  are  unknown,  though  the  capital  of  the  latter 
is  alone  $10,000,000.  Thus,  leaving  out  of  account  the 
very  considerable  part  which  is  unknown,  the  institu- 
tions composing  this  group  have  resources  of  upward  of 


196  APPENDIX 

$632,000,000,  aside  from  the  vast  individual  resources 
of  Messrs.  Morgan,  Baker,  and  Stillman. 

Further,  as  heretofore  shown,  the  members  of  this 
group,  through  stockholdings,  voting  trusts,  interlocking 
directorates,  and  other  relations,  have  become  in  some 
cases  the  absolutely  dominant  factor,  in  others  the  most 
important  single  factor,  in  the  control  of  the  following 
banks  and  trust  companies  in  the  city  of  New  York : 

(a)  Bankers  Trust  Co.,  resources $205,000,000 

(6)  Guaranty  Trust  Co.,  resources.. .  .  232,000,000 

(c)  Astor  Trust  Co.,  resources 27,000,000 

(d)  National     Bank     of     Commerce, 

resources 190,000,000 

(e)  Liberty  National  Bank,  resources .  29,000,000 
(/)  Chase  National  Bank,  resources....  150,000,000 
(g)  Farmers   Loan  &  Trust   Co.,    re- 
sources   135,000,000 

in  all,  7,  with  total  resources  of 968,000,000 

which,  added  to  the  known  resources  of 

members  of  the  group  themselves, 

makes $1,600,000,000 

as  the  aggregate  of  known  banking  re- 
sources in  the  city  of  New  York  under 

their  control  or  influence. 
If  there  be  added  also  the  resources  of 

the  Equitable  Life  Assurance  Society 

controlled  through  stock  ownership 

of  J.  P.  Morgan 504,000,000 

the  amount  becomes $2,104,000,000 

Second,  as  regards  the  greater  transportation  systems. 

(a)  Adams  Express  Co. :  Members  of  the  group  have 
two  representatives  in  the  directorate  of  this  company. 

(b)  Anthracite  coal  carriers:  With  the  exception  of 
the  Pennsylvania  and  the  Delaware  &  Hudson,  the  Read- 
ing, the  Central  of  New  Jersey  (a  majority  of  whose 


APPENDIX  197 

stock  is  owned  by  the  Reading),  the  Lehigh  Valley, 
the  Delaware,  Lackawanna  &  Western,  the  Erie  (con- 
trolling the  New  York,  Susquehanna  &  Western),  and 
the  New  York,  Ontario  &  Western,  afford  the  only 
transportation  outlets  from  the  anthracite  coal  fields. 
As  before  stated,  they  transport  80  per  cent  of  the  out- 
put moving  from  the  mines  and  own  and  control  88 
per  cent  of  the  entire  deposits.  The  Reading,  as  now 
organized,  is  the  creation  of  a  member  of  this  bank- 
ing group  —  Morgan  &  Co.  One  or  more  members  of 
the  group  are  stockholders  in  that  system  and  have 
two  representatives  in  its  directorate;  are  stockholders 
of  the  Central  of  New  Jersey  and  have  four  representa- 
tives in  its  directorate;  are  stockholders  of  the  Lehigh 
Valley  and  have  four  representatives  in  its  director- 
ate; are  stockholders  of  the  Delaware,  Lackawanna  & 
Western  and  have  nine  representatives  in  its  directorate; 
are  stockholders  of  the  Erie  and  have  four  representa- 
tives in  its  directorate;  have  two  representatives  in 
the  directorate  of  the  New  York,  Ontario  &  Western; 
and  have  purchased  or  marketed  practically  all  security 
issues  made  by  these  railroads  in  recent  years. 

(c)  Atchison,  Topeka  &  Santa  Fe  Railway :     One  or 
more  members  of  the  group  are  stockholders  and  have 
two  representatives  in  the  directorate  of  the  company; 
and  since  1907  have  purchased  or  procured  the  marketing 
of  its  security  issues  to  the  amount  of  $107,244,000. 

(d)  Chesapeake  &  Ohio  Railway:  Members  of  the 
group  have  two  directors  in  common  with  this  company, 
and  since  1907,  in  association  with  others,  have  pur- 
chased or  procured  the  marketing  of  its  security  issues 
to  the  amount  of  $85,000,000. 

(e)  Chicago  Great  Western  Railway:  Members  of 


198  APPENDIX 

the  group  absolutely  control  this  system  through  a 
voting  trust. 

(/)  Chicago,  Milwaukee  &  St.  Paul  Railway:  Mem- 
bers of  the  group  have  three  directors  or  officers  in  com- 
mon with  this  company,  and  since  1909,  in  association 
with  others,  have  purchased  or  procured  the  marketing 
of  its  security  issues  to  the  amount  of  $112,000,000. 

(g)  Chicago  &  Northwestern  Railway:  Members 
of  the  group  have  three  directors  in  common  with  this 
company,  and  since  1909,  in  association  with  others, 
have  purchased  or  procured  the  marketing  of  its  security 
issues  to  the  amount  of  $31,250,000. 

(h)  Chicago,  Rock  Island  &  Pacific  Railway:  Mem- 
bers of  the  group  have  four  directors  in  common  with 
this  company. 

(i)  Great  Northern  Railway :  One  or  more  members 
of  the  group  are  stockholders  of  and  have  marketed  the 
only  issue  of  bonds  made  by  this  company. 

(j)  International  Mercantile  Marine  Co.:  A  mem- 
ber of  the  group  organized  this  company,  is  a  stock- 
holder, dominates  it  through  a  voting  trust,  and  markets 
its  securities. 

(k)  New  York  Central  Lines:  One  or  more  mem- 
bers of  the  group  are  stockholders  and  have  four 
representatives  in  the  directorate  of  the  company,  and 
since  1907  have  purchased  from  or  marketed  for  it  and 
its  principal  subsidiaries  security  issues  to  the  extent 
of  $343,000,000,  one  member  of  the  group  being  the 
company's  sole  fiscal  agent. 

(/)  New  York,  New  Haven  &  Hartford  Railroad: 
One  or  more  members  of  the  group  are  stockholders 
and  have  three  representatives  in  the  directorate  of 
the  company,  and  since  1907  have  purchased  from  or 


APPENDIX  199 

marketed  for  it  and  its  principal  subsidiaries  security 
issues  in  excess  of  $150,000,000,  one  member  of  the 
group  being  the  company's  sole  fiscal  agent. 

(TO)  Northern  Pacific  Railway:  One  member  of  the 
group  organized  this  company  and  is  its  fiscal  agent, 
and  one  or  more  members  are  stockholders  and  have 
six  representatives  in  its  directorate  and  three  in  its 
executive  committee. 

(n)  Southern  Railway:  Through  a  voting  trust, 
members  of  the  group  have  absolutely  controlled  this 
company  since  its  reorganization  in  1894. 

(o)  Southern  Pacific  Co.:  Until  its  separation  from 
the  Union  Pacific,  lately  ordered  by  the  Supreme  Court 
of  the  United  States,  members  of  the  group  had  three 
directors  in  common  with  this  company. 

(p)  Union  Pacific  Railroad:  Members  of  the  group 
have  three  directors  in  common  with  this  company. 

Third,  as  regards  the  greater  producing  and  trading 
corporations. 

(a)  Amalgamated  Copper  Co.:  One  member  of  the 
group  took  part  in  the  organization  of  the  company, 
still  has  one  leading  director  in  common  with  it,  and 
markets  its  securities. 

(6)  American  Can  Co. :  Members  of  the  group  have 
two  directors  in  common  with  this  company. 

(c)  J.  I.  Case  Threshing  Machine  Co.:  The  presi- 
dent of  one  member  of  the  group  is  a  voting  trustee  of 
this  company  and  the  group  also  has  one  representative 
in  its  directorate  and  markets  its  securities. 

(d)  William  Cramp  Ship  &  Engine  Building  Co.: 
Members  of  the  group  absolutely  control  this  company 
through  a  voting  trust. 


200  APPENDIX 

(e)  General  Electric  Co.:  A  member  of  the  group 
was  one  of  the  organizers  of  the  company,  is  a  stock- 
holder, and  has  always  had  two  representatives  in  its 
directorate,  and  markets  its  securities. 

(/)  International  Harvester  Co.:  A  member  of  the 
group  organized  the  company,  named  its  directorate 
and  the  chairman  of  its  finance  committee,  directed  its 
management  through  a  voting  trust,  is  a  stockholder, 
and  markets  its  securities. 

(g)  Lackawanna  Steel  Co.:  Members  of  the  group 
have  four  directors  in  common  with  the  company  and, 
with  associates,  marketed  its  last  issue  of  securities. 

(K)  Pullman  Co.:  The  group  has  two  representa- 
tives, Mr.  Morgan  and  Mr.  Baker,  in  the  directorate 
of  this  company. 

(i)  United  States  Steel  Corporation:  A  member  of 
the  group  organized  this  company,  named  its  director- 
ate, and  the  chairman  of  its  finance  committee  (which 
also  has  the  powers  of  an  executive  committee)  is  its 
sole  fiscal  agent  and  a  stockholder,  and  has  always 
controlled  its  management. 

Fourth,  as  regards  the  great  public  utility  corporations. 

(a)  American  Telephone  &  Telegraph  Co.:  One  or 
more  members  of  the  group  are  stockholders,  have  three 
representatives  in  its  directorate,  and  since  1906,  with 
other  associates,  have  marketed  for  it  and  its  subsidi- 
aries security  issues  in  excess  of  $300,000,000. 

(6)  Chicago  Elevated  Railways:  A  member  of  the 
group  has  two  officers  or  directors  in  common  with  the 
company,  and  in  conjunction  with  others  marketed  for 
it  in  1911  security  issues  amounting  to  $66,000,000. 

(c)  Consolidated  Gas  Co.  of  New  York:  Members 


APPENDIX  201 

of  the  group  control  this  company  through  majority 
representation  on  its  directorate. 

(d)  Hudson  &  Manhattan  Railroad:  One  or  more 
members  of  the  group  marketed  and  have  large  interests 
in  the  securities  of  this  company,  though  its  debt  is  now 
being  adjusted  by  Kuhn,  Loeb  &  Co. 

(e)  Interborough  Rapid  Transit  Co.  of  New  York: 
A  member  of  the  group  is  the  banker  of  this  company, 
and  the  group  has  agreed  to  market  its  impending  bond 
issue  of  $170,000,000. 

(/)  Philadelphia  Rapid  Transit  Co.:  Members  of 
the  group  have  two  representatives  in  the  directorate 
of  this  company. 

(g)  Western  Union  Telegraph  Co. :  Members  of  the 
group  have  seven  representatives  in  the  directorate 
of  this  company. 

Summary  of  directorships  held  by  these  members  of  the 
group.  —  Exhibit  134-B  .  .  .  shows  the  combined  direc- 
torships in  the  more  important  enterprises  held  by  Mor- 
gan &  Co.,  the  First  National  Bank,  the  National  City 
Bank,  and  the  Bankers  and  Guaranty  Trust  Cos.,  which 
latter  two,  as  previously  shown,  are  absolutely  controlled 
by  Morgan  &  Co.  through  voting  trusts.  It  appears 
there  that  firm  members  or  directors  of  these  institu- 
tions together  hold : 

One  hundred  and  eighteen  directorships  in  thirty- 
four  banks  and  trust  companies  having  total  resources 
of  $2,679,000,000  and  total  deposits  of  $1,983,000,000. 

Thirty  directorships  in  ten  insurance  companies  hav- 
ing total  assets  of  $2,293,000,000. 

One  hundred  and  five  directorships  in  thirty-two 
transportation  systems  having  a  total  capitalization  of 


202  APPENDIX 

$11,784,000,000  and  a  total  mileage  (excluding  express 
companies  and  steamship  lines)  of  150,200. 

Sixty-three  directorships  in  twenty-four  producing 
and  trading  corporations  having  a  total  capitalization 
of  $3,339,000,000. 

Twenty -five  directorships  in  twelve  public  utility  cor- 
porations having  a  total  capitalization  of  $2,150,000,000. 

In  all,  341  directorships  in  112  corporations  having 
aggregate  resources  or  capitalization  of  $22,245,000,000. 

The  members  of  the  firm  of  J.  P.  Morgan  &  Co.  hold 
seventy-two  directorships  in  forty-seven  of  the  greater 
corporations;  George  F.  Baker,  chairman  of  the  board, 
F.  L.  Hine,  president,  and  George  F.  Baker,  Jr.,  and 
C.  D.  Norton,  vice  presidents,  of  the  First  National 
Bank  of  New  York  hold  forty-six  directorships  in  thirty- 
seven  of  the  greater  corporations;  and  James  Stillman, 
chairman  of  the  board,  Frank  A.  Vanderlip,  president, 
and  Samuel  McRoberts,  J.  T.  Talbert,  W.  A.  Simon- 
son,  vice  presidents,  of  the  National  City  Bank  of  New 
York,  hold  thirty-two  directorships  in  twenty-six  of  the 
greater  corporations;  making  in  all  for  these  members 
of  the  group  150  directorships  in  110  of  the  greater 
corporations. 

The  affiliations  of  these  and  other  banking  institu- 
tions with  the  larger  railroad,  industrial,  and  public 
utility  corporations  and  banks,  trust  companies,  and 
insurance  companies  of  the  United  States,  are  shown  in 
graphic  form  in  two  diagrams  which  are  in  evidence, 
and  are  attached  to  this  report  as  Appendices  F  and  G. 

Relations  between  Morgan  &  Co.,  First  National  Bank, 
National  City  Bank,  Lee  Higginson  &  Co.,  Kidder,  Pea- 
body  &  Co.,  and  Kuhn,  Loeb  &  Co.  —  Besides  the  group 


APPENDIX  203 

composed  of  Morgan  &  Co.  and  the  First  National 
Bank  and  the  National  City  Bank,  the  principal  bank- 
ing agencies  through  which  the  greater  corporate  en- 
terprises of  the  United  States  obtain  capital  for  their 
operations  are  the  international  banking  firms  of  Kuhn, 
Loeb  &  Co.,  of  New  York,  and  Kidder,  Peabody  &  Co. 
and  Lee  Higginson  &  Co.,  of  Boston  and  New  York. 

While  it  does  not  appear  that  these  three  last-named 
houses  are  affiliated  with  the  group  consisting  of  the 
first  three  in  so  definite  and  permanent  a  form  of  alliance 
as  that  existing  between  the  latter,  it  is  established  that 
as  issuing  houses  they  do  not  as  a  rule  act  independ- 
ently in  purchasing  security  issues  but  rather  in  uni- 
son and  cooperation  with  one  or  more  members  of  that 
group,  with  the  result  that  in  the  vastly  important 
service  of  arranging  credits  for  the  great  commercial 
enterprises  of  the  country  there  is  no  competition  or 
rivalry  between  those  dominating  that  field,  but  vir- 
tually a  monopoly,  the  terms  of  which  the  borrowing 
corporations  must  accept. 

The  full  extent  to  which  they  participate  in  one 
another's  issues  does  not  appear,  owing  to  the  absence 
of  data  as  to  the  names  of  underwriters,  other  than  in 
strictly  joint-account  transactions  of  the  issues  of  securi- 
ties made  by  Messrs.  Morgan  &  Co.,  Kuhn,  Loeb  &  Co., 
the  First  National  Bank,  and  the  National  City  Bank. 
The  distinction  between  the  cases  in  which  one  of  the 
banks  or  banking  houses  assumes  the  relation  of  an 
underwriter  of  an  issue  of  securities  made  by  one  of  the 
others  and  that  in  which  they  act  in  joint  account  is 
that  in  the  former  case  underwriters  do  not  share  in  the 
primary  bankers'  profit,  but  insure  the  former  against 
loss,  while  in  the  case  of  a  joint  account  they  are  part- 


204  APPENDIX 

ners  and  as  such  share  in  the  original  risks  and  profits. 

The  course  of  business  is  for  the  house  acquiring 
from  a  corporation  the  right  of  purchasing  or  under- 
writing an  issue  of  its  securities  to  offer  participations 
in  the  purchase  or  underwriting  to  one  or  more  of  the 
associates  named.  Taking  as  an  illustration  the  latest 
issue  of  the  American  Telephone  &  Telegraph  Co.,  the 
method  of  procedure  is  thus  described  in  the  testimony 
of  Mr.  Schiff  (R.,  1664) : 

Q.  And  is  there  not  an  issue  now  in  course  of  offer 
to  the  public  of  American  Telephone  &  Telegraph 
bonds? 

A.     There  is. 

Q.    Advertised  in  the  last  few  days? 

A.  In  course  of  offer  to  stockholders;  not  to  the 
public. 

Q.  They  are  in  course  of  offer  to  the  stockholders 
and  if  the  stockholders  do  not  take  them,  are  they  then 
to  be  offered  to  the  public? 

A.  Then  the  underwriting  syndicate  will  have  to 
take  them,  and  whether  they  will  offer  them  to  the 
public  or  not  I  do  not  know. 

Q.  But  it  is  an  issue  that  is  publicly  offered  to  the 
stockholders? 

A.  It  is  going  to  be  publicly  offered  to  the  stock- 
holders. 

Q.     What  is  the  amount  of  that  issue? 

A .     I  believe  it  is  between  $60,000,000  and  $70,000,000. 

Q.     It  is  $67,000,000,  is  it  not? 

A.     It  may  be  $67,000,000;  I  do  not  recall. 

Q.  Is  that  a  joint-account  transaction  between 
Morgan,  Kidder,  Peabody,  and  yourselves? 

A.     It    is    a    joint    account    transaction    between 


APPENDIX  205 

Morgan's,  First  National  Bank,  the  National  City 
Bank,  Kidder,  Peabody  &  Co.,  and  Baring  Bros., 
and  ourselves. 

Q.     Baring  Bros.,  of  London? 

A.     Yes. 

Q.  Take  that  as  an  illustration;  who  made  the  deal 
with  the  company? 

A.     I  believe  J.  P.  Morgan  &  Co. 

Q.  And  they  invited  you  to  participate  on  joint 
account  with  these  other  houses  ? 

A.    They  did. 

It  was  admitted  by  Mr.  Davison,  of  Morgan  &  Co., 
and  other  bankers  that  the  practice  of  banking  houses 
becoming  in  effect  partners  in  the  purchasing  and  under- 
writing of  securities  instead  of  acting  independently  of 
one  another  is  a  development  of  recent  years. 

Mr.  Davison  testified  as  follows  (R.,  1854,  1855). 

Q.  Recently,  within  the  last  few  years,  many  of  the 
issues  of  J.  P.  Morgan  &  Co.  have  been  made  jointly 
with  the  First  National  Bank  and  the  National  City 
Bank,  have  they  not? 

A.     Yes. 

Q.  And  many  with  Lee-Higginson  and  with  western 
bankers? 

A.  No;  not  very  many  with  the  western  bankers. 
As  a  matter  of  fact,  I  recall  very  few  with  the  western 
bankers.  We  have  made  them  occasionally  with  Lee- 
Higginson  and  with  other  houses. 

Q.  You  have  made  them  very  largely  with  Lee- 
Higginson? 

A.  It  is  comparative.  I  do  not  think  we  have,  very 
largely. 


206  APPENDIX 

Q.  But  your  main  joint-account  transactions  are 
with  the  City  Bank  and  the  First  National  Bank? 

A.     I  think  they  have  been. 

Q.  Is  it  not  a  fact  that  in  previous  years  you  made 
the  issues  largely  alone,  prior  to  five  years  ago? 

A.  I  think  more  largely  alone;  yes,  sir.  They  were 
smaller  in  character. 

Q.  Within  what  length  of  time  has  it  been  that  J.  P. 
Morgan  &  Co.  have  done  most  of  their  issuing  business 
in  joint  account?  Has  it  been  within  your  time? 

A.     No;  I  think  it  was  a  little  before  my  time. 

Q.     You  think  it  started  a  little  before  your  time? 

A.  I  think  it  started  a  little  before  my  time.  In 
fact,  the  evidence  shows  that  it  did. 

Mr.  Schiff  said  (R.,  1688) : 

Q.  Don't  you  know  that  most  of  the  Morgan  issues 
in  the  past  few  years  have  been  made  jointly;  that  is- 
that  the  City  Bank  has  participated  in  them  with  the 
First  National? 

A.     I  do. 

Mr.  Schiff  is  a  director  of  the  City  Bank. 

It  will  be  noticed  that  Mr.  Davison  advances  the 
great  size  of  present-day  security  issues  in  explana- 
tion of  why  banking  houses  now  purchase  such  issues  in 
combination  or  for  joint  account  instead  of  independ- 
ently, as  formerly.  The  fact  is,  however,  .  .  .  that 
not  only  are  small  issues  still  very  frequent,  but  they 
are  purchased  in  concert  as  regularly  as  the  larger  issues. 
Of  the  issues  since  1907  .  .  .  purchased  or  underwritten 
by  two  or  more  of  the  banking  houses  there  named  acting 
together,  about  ninety  were  for  $5,000,000  and  less,  while 
an  additional  sixty  were  for  amounts  between  $5,000,000 


APPENDIX  207 

and  $10,000,000.  It  also  appears  that  forty-five  of  such 
issues  for  $5,000,000  and  less,  most  of  them  made  since 
1909,  were  purchased  or  underwritten  by  Morgan  &  Co. 
in  conjunction  with  associates. 

Of  course  we  do  not  suggest  that  banking  houses  may 
not  on  particular  occasions  join  in  purchasing  or  under- 
writing an  issue  of  securities  and  yet  remain  entirely 
independent  and  free  to  compete  with  each  other  gener- 
ally in  the  purchase  of  security  issues.  But  where  a 
group  of  such  banking  houses,  pursuant  to  a  settled 
policy,  regularly  purchase  these  issues  in  concert,  com- 
petition amongst  them  in  this  vastly  important  com- 
mercial function  is  effectually  suppressed.  And  that  is 
the  situation  in  this  country.  No  less  an  authority 
than  Mr.  Baker  admitted  as  much  (R.,  1542,  1543) : 

Q.  But  among  these  banking  houses  that  we  have 
named  is  there  not  a  strong  and  continuous  community 
of  interest  in  the  purchase  and  sale  of  securities? 

A.  I  think  there  is.  We  have  always  tried  to  deal 
with  our  friends  rather  than  with  people  we  do  not  know. 

Q.  It  is  a  good  deal  better  to  deal  with  your  friends 
and  split  it  up  than  it  is  to  compete  for  the  securities? 

A.     Not  necessarily. 

Q.     That  is  what  happens,  is  it  not? 

A.     Oh,  I  do  not  think  so  to  any  great  extent. 

Q.  Have  you  ever  competed  for  any  securities  with 
Morgan  &  Co.  in  the  last  five  years?  If  so,  give  us  the 
name  of  them. 

A.     I  do  not  know  that  we  have  competed  with  them. 

Q.  You  divide  with  them,  do  you  not?  You  give 
them  a  part  of  the  issues  when  you  have  it? 

A.     We  are  apt  to. 

Q.     And  if  they  take  a  security  they  give  you  a  part 


208  APPENDIX 

of  the  issue,  do  they  not? 

A.    Yes. 

Q.  That  is  what  is  known  as  the  modern  system  of 
cooperation  and  combination  as  against  the  antique 
system  of  competition,  is  it  not? 

A.     That  is  rather  a  long  name  for  me. 

Q.  You  understand  the  question.  I  would  like  to 
have  you  answer  it. 

A.     I  never  heard  it  called  in  that  way  before. 

Q.     How  would  you  call  it? 

A.     I  would  not  call  it  at  all. 

Q.     You  know  what  cooperation  is,  do  you  not? 

A.     Yes. 

Q.  Is  that  not  cooperation  as  against  competition? 
That  is  the  modern  system  of  cooperation  as  against 
the  archaic  system  of  competition,  is  it  not? 

A.     I  do  not  understand  how  you  state  that. 

Q.     That  is  right,  is  it  not? 

A.     All  right;  yes. 

Q.  And  that  has  been  found  to  work  very  well,  has 
it  not? 

A.     I  think  so. 

Q.     For  the  bankers? 

A.     Yes;  and  for  others,  too. 

Moreover,  the  banking  houses  which  have  joined  in 
the  plan  of  cooperation  comprise  the  principal  mediums 
through  which  the  greater  corporations  of  the  country 
obtain  their  supplies  of  capital. 

The  charge  for  capital,  which,  of  course,  enters  uni- 
versally into  the  prices  of  commodities  and  of  service, 
is  thus  in  effect  determined  by  agreement  amongst  those 
supplying  it,  and  not  under  the  check  of  competition.  If 


APPENDIX  209 

there  be  any  virtue  in  the  principle  of  competition, 
certainly  any  plan  or  arrangement  which  prevents  its 
operation  in  the  performance  of  so  fundamental  a 
commercial  function  as  the  supplying  of  capital  is 
peculiarly  injurious. 

The  possibility  of  competition  between  these  banking 
houses  in  the  purchase  of  securities  is  further  removed 
by  the  understanding  amongst  them  and  others  that 
one  will  not  seek  by  offering  better  terms  to  take 
away  from  another  a  customer  which  it  has  theretofore 
served,  and  by  the  corollary  of  this,  namely,  that  where 
given  bankers  have  once  satisfactorily  united  in  bringing 
out  an  issue  of  a  corporation  they  shall  also  join  in  bring- 
ing out  any  subsequent  issue  of  the  same  corporation. 
This  is  described  as  a  principle  of  banking  ethics.  It  is 
thus  stated  by  Mr.  Hine,  president  of  the  First  National 
Bank  of  New  York  (R.,  2045,  2046) : 

Q.  Recently  your  bank  made  an  issue,  jointly  with 
J.  P.  Morgan  &  Co.  and  the  National  City  Bank,  of 
Chicago  &  Western  Indiana  Railway  bonds,  of  ten 
millions,  did  it  not? 

A.    Notes. 

Q.  Ten  millions  of  notes,  yes.  Why  was  it  necessary 
that  three  great  banking  houses  should  join  in  an  issue 
of  that  kind? 

A.     I  do  not  know  of  any  reason. 

Q.  Was  it  not  because  they  had  been  jointly 
interested  in  previous  issues  of  the  same  company? 

A.     I  do  not  know  that  it  was. 

Q.  Had  they  been  jointly  interested  in  previous 
issues? 

A.     I  think  they  had. 

Q.     Is  it  or  is  it  not  the  custom  when  banking  houses 


210  APPENDIX 

are  interested  or  become  interested  in  one  kind  of 
issues  of  a  company  that  they  retain  that  interest  in 
other  issues? 

A.     Often  it  is  so. 

Q.     That  is  part  of  the  banking  ethics,  is  it  not? 

A.     Yes,  I  would  say  it  is;  on  satisfactory  terms. 

Q.  Is  it  another  rule  of  banking  ethics  that  bankers 
shall  not  interfere  with  one  another's  customers? 

A.  The  same  ethics  obtain  in  banking  that  obtain 
in  the  legal  profession  and  in  the  medical  profession  as 
to  infringing  upon  the  preserves  of  others. 

Q.  Well,  what  are  the  ethics  in  the  banking  pro- 
fession as  to  trespassing  upon  the  preserves  of  others? 

A.  If  you  will  tell  me  what  the  ethics  are  in  the  legal 
world,  I  will  answer  youi  question. 

Q.  No;  I  would  rather  have  you  tell  me  the  ethics 
in  the  world  with  which  you  are  acquainted. 

A.  I  can  not  state  the  matter  any  better  than  you 
have.  It  is  the  custom  —  I  am  not  dealing  in  ethics. 

Q.  What  is  the  custom  among  bankers  and  banking 
houses  as  to  any  one  interfering  with  another's  customer 
in  business? 

A.  I  do  not  know  whether  there  is  any  custom.  I 
think  it  is  considered  unprofessional. 

Q.     Unbusinesslike? 

A.  And  not  in  good  form  according  to  the  highest 
principles  of  business  practice. 

Q.  Is  it  not  in  accordance  with  banking  ethics  to 
interfere  with  or  take  customers  away  from  firms;  to 
take  customers  who  have  been  doing  business  with 
some  other  banking  house? 

A.  I  think  that  is  ordinarily  considered  high-minded 
practice  not  to  do  so. 


APPENDIX  211 

Mr.  Davison  testifying  on  the  same  subject  said 
(R.,  1858,  1859) : 

Q.  Then  you  know  of  these  three  instances  —  the 
Chicago  &  Western  Indiana  Railway  Co.,  the  Kansas 
City  Terminal  Co.,  and  the  New  York  Central,  all  made 
within  a  few  weeks  jointly  with  other  banking  houses  — 
those  we  have  been  discussing.  Is  there  any  rule  or 
custom  among  bankers  that  where  they  make  one  issue 
of  a  company  or  are  interested  together  in  one  issue  they 
remain  interested  in  subsequent  issues? 

A.     For  the  same  company? 

Q.    Yes. 

A.  As  a  matter  of  practice,  if  it  was  satisfactory  in 
every  particular,  I  should  say  it  was  the  custom;  yes. 
It  is  a  matter  of  banking  ethics. 

Q.     A  matter  of  banking  ethics? 

A.     I  should  say  so;  yes. 

Q.  If  either  one  of  the  three  thereafter  gets  an  issue 
of  that  company  it  is  a  matter  of  banking  ethics  that  it 
is  for  joint  account,  is  it? 

A.  I  should  say  that  the  natural  way  of  handling 
that  business  would  be  to  have  it  go  to  the  parties  who 
handled  it  before,  if  it  were  satisfactorily  handled;  yes. 

Q.  You  mean  if  they  have  not  had  any  differences 
or  disagreements  between  themselves? 

A.     Yes,  if  it  was  satisfactorily  handled. 

Q.  Have  you  not  within  the  last  few  weeks  also 
taken  an  issue  of  $67,000,000  of  American  Telephone 
&  Telegraph  Co.  bonds  jointly  with  Lee-Higginson  and 
other  banking  houses? 

A.    No. 

Q.     You  participated  with  them  in  that  issue? 

A.     Excuse  me,  I  was  going  to  answer  your  question. 


212  APPENDIX 

I  think  with  others,  not  including  Lee-Higginson  &  Co 
as  principals,  but  with  Kidder,  Peabody  &  Co.,  the 
First  National,  the  National  City  Bank,  Baring  Bros. 
&  Co.  (Ltd.),  of  London,  and  Morgan-Grenfell  (Ltd.), 
of  London,  we  have  underwritten  an  issue  of  $67,000,000 
of  American  Telephone  &  Telegraph  Co.  bonds. 

Q.     Are  they  the  same  parties 

A.     I  beg  your  pardon  —  and  Kuhn,  Loeb  &  Co. 

Q.  Are  they  the  same  bankers  or  banking  houses 
with  which  you  had  previously  underwritten  issues  of 
the  American  Telephone  &  Telegraph  Co.? 

A.  Exactly;  and  that  is  a  complete  answer  to  your 
question. 

Q.  You  have  together  underwritten,  I  think,  $150,- 
000,000  of  those  bonds,  have  you  not? 

A.     That  is  my  recollection. 

Q.  So  that  the  same  rule  of  banking  ethics  required 
the  same  disposition  of  this  issue  as  of  the  others? 

A.     I  would  not  say  it  required  it. 

Q.     It  resulted  in  it? 

A.     It  resulted  in  it,  exactly. 

Q.  As  a  matter  of  fact,  in  business  morals  it  would 
require  it. 

A.  It  would  require  it  if  everything  was  properly 
and  satisfactorily  handled,  and  there  were  no  other 
factors  in  the  situation  which  might  make  it  inexpe- 
dient. The  situation,  when  a  transaction  comes  up, 
always  governs. 

Mr.  Schiff  was  more  guarded  in  his  statement  of  the 
practice  (R.,  1666,  1668,  1669) : 

Q.  And  you  would  not,  for  instance,  if  you  knew 
the  Southern  Railway  was  going  to  make  an  issue  of 


APPENDIX  213 

securities,  be  willing  to  bid  on  them,  would  you? 

A.     We  would  not. 

Q.  In  other  words,  these  houses  have  their  recog- 
nized clients,  have  they  not? 

A.     To  some  extent. 

Q.  And  is  it  not  also  recognized  that  they  are  their 
clients  and  that  they  are  not  to  be  interfered  with? 

A.  I  think  that  is  going  a  bit  too  far,  because  there  is 
very  frequently  interference  or  attempted  interference. 

Q.  Has  there  ever  been  any  interference  with  your 
exclusively  handling  the  issues  of  the  Union  Pacific 
Railroad  in  the  last  ten  years? 

A.     I  do  not  think  so. 

Q.  Have  you  any  instance  in  mind  in  which  in  the 
last  five  years  you  have  invaded  the  field  of  Messrs. 
Morgan  &  Co.  or  they  have  invaded  yours? 

A.     I  have  not. 

Q.  Or  have  you  in  mind  any  instance  in  which  you 
have  invaded  the  field  of  the  National  City  Bank  or 
the  First  National  Bank,  or  in  which  they  have  invaded 
yours? 

A.  As  to  the  First  National  Bank,  I  know  we  have 
not.  As  to  the  National  City  Bank  I  can  not  say  for 
certain.  I  think  they  would  do  business  to  a  certain 
extent  even  where  we  are  considered  the  agents,  and 
we  would  do  certain  business  where  they  are  considered 
the  agents;  not  to  a  large  extent. 

Q.  Is  not  that  where  the  corporation  is  a  customer 
of  both  of  you?  Is  not  that  the  only  case  in  which  the 
corporation  is  claimed  to  be  or  regarded  as  a  customer 
of  both  of  you  or  either  of  you? 

A.     It  is  in  cases  where  a  corporation  is  regarded  as  a 


214  APPENDIX 

customer  of  neither. 

Q.  That  is,  in  a  case  in  which  the  field  happens  to 
be  open? 

A.    Yes. 

This  custom,  by  whatever  name  it  be  called,  and  the 
practice  of  these  great  banking  houses  which  it  supple- 
ments of  purchasing  security  issues  in  concert  and  not 
independently  can  not  have  any  other  effect  than  the  sup- 
pression of  competition  in  the  purchasing  of  such  securi- 
ties, and  the  creation  of  a  combination  or  community 
of  interest  which  may  grant  or  withhold  credit  as  it  wills 
and  whose  terms  borrowing  corporations  must  accept. 

Undue  concentration  admitted.  —  Mr.  Reynolds,  presi- 
dent of  the  Continental  &  Commercial  National  Bank 
of  Chicago,  was  outspoken  in  the  view  that  concentra- 
tion of  control  of  banking  resources  has  already  gone  so 
far  as  to  be  a  menace  to  the  country  (R.,  1654,  1655) : 

Q.  I  suppose,  Mr.  Reynolds,  that  as  president  of  a 
great  bank  you  have  kept  in  touch  with  the  very  recent 
trend  toward  concentration  and  control  of  money  and 
credit  in  the  East? 

A.  Yes,  sir;  I  have  been  constantly  reminded  of  it 
in  the  last  year  or  so. 

Q.  You  know  the  extent  to  which  it  has  gone  in  the 
last  few  years? 

A.     I  have  a  general  knowledge  of  it;  yes,  sir. 

Q.  Do  you  or  not  know  the  effect  that  has  on  the 
marketing  of  securities  of  a  great  railroad  and  other 
interstate  corporations,  and  the  trend  of  concentration 
brought  about  through  the  concentration  of  this  money 
and  credit? 

A.     I  have  read  all  that  has  been  adduced  at  this 


APPENDIX  215 

examination,  and  a  great  many  other  things,  and  my 
information  in  detail  is  very  largely  the  result  of  this 
reading,  rather  than  from  personal  experience. 

Q.  But  you  have  information  and  knowledge  of  the 
conditions  in  New  York,  for  instance,  as  between  the 
great  banking  houses.  That  is  a  matter  of  personal 
knowledge? 

A.  Yes;  I  have  a  fairly  general  knowledge  of  that, 
I  should  say. 

Q.  What  would  you  say  as  to  that  concentration  of 
the  control  of  money  and  credit  being  a  menace  to  the 
country? 

A.  That  involves  a  very  deep  question.  Personal- 
ly I  am  inclined  to  believe  that  an  excess  of  power  of 
any  kind  in  the  hands  of  a  few  men  might  properly  be 
called  a  menace.  I  do  not  mean  to  say  by  that  that  the 
people  who  had  that  control  and  power  have  used  it 
improperly.  I  do  not  mean  to  say  that  at  all. 

Q.  Regardless  of  the  way  they  have  used  it  for  the 
time  being,  the  question  is,  is  it  not,  as  to  the  way  they 
can  use  it? 

A.  I  think  a  more  wide  distribution  of  the  power  of 
credit,  if  that  is  what  you  mean,  would  really  be  better 
in  the  long  run. 

Q.  Taking  the  present  situation  as  you  find  it,  Mr. 
Reynolds,  what  is  your  judgment  as  to  whether  that 
situation  is  a  menace? 

A.  I  am  inclined  to  think  that  the  concentration, 
having  gone  to  the  extent  it  has,  does  constitute  a  men- 
ace. I  wish  again,  however,  to  qualify  that  by  saying 
that  I  do  not  mean  to  sit  in  judgment  upon  anybody 
who  controls  that,  because  I  do  not  pretend  to  know 
whether  they  have  used  it  fairly  or  honestly  or  otherwise. 


216  APPENDIX 

Mr.  Schiff  also  conceded  rapid  concentration  of  con- 
trol of  banking  resources  in  New  York  in  recent  years, 
but  he  stated  that  it  caused  him  no  anxiety  so  far  as 
the  well-being  of  his  own  firm  was  concerned,  as  they 
were  able  to  take  care  of  themselves.  We  quote  (R., 
1686-1687,  1688): 

Q.  Have  you  been  an  interested  observer  of  the 
concentration  and  control  of  money  and  credit  in  New 
York  in  the  last  few  years? 

A.     I  have. 

Q.  You  have  seen  it  grow  very  rapidly,  have  you 
not? 

A.    Yes. 

Q.  And  you  have  seen  it  drift  into  fewer  and  fewer 
hands,  have  you  not? 

A.     It  has  drifted  into  fewer  and  fewer  corporations. 

Q.  And  the  concentration  and  control  of  those 
corporations  has  drifted  into  fewer  hands,  has  it  not? 

A.     I  am  not  sure  that  it  has  done  that. 

Q.     Do  you  know  anything  about  it? 

A.     Well,  I  think  the  stockholding  in  different 

Q.     I  say,  do  you  know  anything  about  it? 

A.     Not  very  closely. 

Q.     You  have  not  watched  it  very  closely? 

A.  I  think  stockholdings  in  most  New  York  cor- 
porations are  very  well  divided. 

Q.  We  are  not  talking  about  stockholdings,  but 
about  practical  control  of  management  as  distinguished 
from  stockholding.  You  see  the  difference? 

A.     I  see  the  difference. 

Q.     It  is  a  very  substantial  difference,  is  it  not? 

A.    Yes,  sir. 

Q.    Now,  confining  yourself  to  the  question  of  actual 


APPENDIX  217 

practical  control  of  the  management  of  these  great 
moneyed  corporations,  you  have  observed,  have  you 
not,  a  growing  concentration  of  control? 

A.    I  have. 

Q.    And  has  it  been  a  subject  of  concern  to  you? 

A.     No;  it  has  not. 

Q.  You  have  been  an  interested  onlooker  in  this 
concentration? 

A.     An  observer;  yes. 

Q.  And  you  have  understood  the  possibility  of  its  af- 
fecting you  and  your  own  sources  of  credit,  have  you  not? 

A.     I  have  not  been  concerned  in  that. 

Q.    You  do  not  require  credit,  then? 

A.    No. 

Q.  But  you  have  considered  its  effect  upon  the  small 
banking  houses,  not  so  fortunately  situated  as  you, 
that  do  require  credit? 

A.    Yes. 

Q.    Have  you  considered  it? 

A.    Yes. 

Q.  And  have  you  considered  its  effect  on  the  ability 
of  the  smaller  houses  to  grow  and  become  great  issuing 
houses? 

A.    Yes. 

Finally,  Mr.  Baker,  who  is  outranked  only  by  Mr. 
Morgan,  if  at  all,  as  a  factor  in  the  concentration  of 
control  of  banking  resources  and  credit  into  fewer  and 
fewer  hands  in  New  York,  frankly  admitted  that  in  his 
judgment  the  movement  had  gone  far  enough;  that 
even  if  it  stopped  where  it  is  the  peril  would  be  great 
if  ambitious  and  not  overscrupulous  men  should  get  into 


218  APPENDIX 

the  places  of  power  which  have  been  created;  and  that 
therefore  the  safety  of  the  existing  system  lies  in  the 
personnel  of  the  men  now  in  control.  We  quote  from 
his  illuminating  testimony  (R.,  1567,  1568) : 

Q.  I  suppose  you  would  see  no  harm,  would  you, 
in  having  the  control  of  credit,  as  represented  by  the 
control  of  banks  and  trust  companies,  still  further  con- 
centrated? Do  you  think  that  would  be  dangerous? 

A.     I  think  it  has  gone  about  far  enough. 

Q.     You  think  it  would  be  dangerous  to  go  further? 

A.  It  might  not  be  dangerous,  but  still  it  has  gone 
about  far  enough.  In  good  hands,  I  do  not  see  that  it 
would  do  any  harm.  If  it  got  into  bad  hands,  it  would 
be  very  bad. 

Q.  If  it  got  into  bad  hands,  it  would  wreck  the 
country? 

A.  Yes;  but  I  do  not  believe  it  could  get  into  bad 
hands. 

Q.  You  admit  that  if  this  concentration,  to  the 
point  to  which  it  has  gone,  were  by  any  action  to  get 
into  bad  hands,  it  would  wreck  the  country? 

A.     I  can  not  imagine  such  a  condition. 

Q.     I  thought  you  said  so? 

A.  I  said  it  could  be  bad,  but  I  do  not  think  it  would 
wreck  the  country.  I  do  not  think  bad  hands  could 
manage  it.  They  could  not  retain  the  deposits  nor  the 
securities. 

Q.  I  am  not  speaking  of  incompetent  hands.  We 
are  speaking  of  this  concentration  which  has  come 
about  and  the  power  that  it  brings  with  it  getting  into 
the  hands  of  very  ambitious  men,  perhaps  not  over- 
scrupulous. You  see  a  peril  in  that,  do  you  not? 

A.    Yes. 


APPENDIX  219 

Q.  So  that  the  safety,  if  you  think  there  is  safety 
in  the  situation,  really  lies  in  the  personnel  of  the  men? 

A.     Very  much. 

Q.  Do  you  think  that  is  a  comfortable  situation  for 
a  great  country  to  be  in? 

A.     Not  entirely. 


BIBLIOGRAPHICAL  NOTE 

THE  literature  covering  special  phases  of  the  develop- 
ment and  growth  of  capitalized  industry  and  "high 
finance  "  in  the  United  States  during  the  past  half  cen- 
tury is  plentiful  enough.  Scores  of  volumes  have  been 
written  on  the  Trusts,  on  particular  industries,  and 
special  combinations  of  capital.  But  no  exhaustive 
study  appears  to  have  been  made  of  the  broad  trend 
toward  the  concentration  and  control  of  industry  and 
finance  by  Wall  Street  financiers,  during  the  remark- 
able period  culminating  in  the  aggressive  antitrust 
legislation  after  the  financial  crash  of  1907. 

Among  the  best  popular  books  on  the  Standard  Oil 
Trust  may  be  mentioned:  Wealth  Against  Common- 
Wealth,  by  Henry  Demarest  Lloyd  (1894);  History  of 
the  Standard  Oil  Trust,  by  S.  C.  T.  Dodd  (1894) ;  Rise  and 
Progress  of  the  Standard  Oil  Company,  by  Gilbert  Hol- 
land Montague  (1903);  History  of  the  Standard  Oil  Com- 
pany, by  Ida  M.  Tarbell  (1904).  To  supplement  these 
books,  bringing  the  facts  relating  to  this  great  business 
aggregation  down  to  later  dates,  reference  should  be 
made  to  government  exhibits,  such  as  the  report  of  the 
United  States  Industrial  Commission  (1900  and  1902) ; 
the  testimony  in  the  Supreme  Court  suit  for  dissolution 
(1910  and  1911)  and  the  report  of  the  "Money  Trust 
Investigation"  made  by  the  Committee  on  Banking 

221 


222  BIBLIOGRAPHICAL  NOTE 

and  Currency  of  the  House  of  Representatives  in  1913. 
These  latter  are  a  real  mine  of  information  regarding 
the  activities  not  only  of  Standard  Oil  magnates  in  busi- 
ness and  banking  fields,  but  of  others  as  well  during  the 
preceding  decade. 

The  story  of  the  Morgan  banking  house  has  never 
been  fully  told,  though  the  Life  Story  of  J.  P.  Morgan, 
by  Carl  Hovey  (1911),  presents  a  fair  outline.  Consult 
also,  Forty  Years  of  American  Finance,  by  Alexander  D. 
Noyes  (1909)  which  contains  interesting  chapters  on  the 
government  financing  undertaken  by  the  firm. 

The  facts  of  Edward  H.  Harriman's  remarkable  career 
can  be  culled  only  from  the  current  financial  publica- 
tions of  the  period.  Government  reports,  such  as  the 
testimony  in  the  Supreme  Court  suit  for  the  dissolu- 
tion of  the  Northern  Securities  Company  (1904)  and 
the  report  of  the  Committee  on  Banking  and  Currency, 
show  the  general  activities  of  the  Harriman  financiers 
and  their  connections  with  Wall  Street. 

The  rise  to  power  of  the  steel  and  iron  magnates  and 
the  growth  of  allied  industries  have  been  presented  to 
the  public  in  various  forms.  A  valuable  but  biased  work 
is  the  Inside  History  of  the  Carnegie  Steel  Company,  by 
James  H.  Bridge  (1903).  The  Romance  of  Steel,  by 
Herbert  N.  Casson  (1907)  is  a  very  readable  story. 

On  the  specific  subject  of  Wall  Street  mechanism  and 
finance,  The  Work  of  Wall  Street,  by  Sereno  S.  Pratt 
(1912),  and  Wall  Street  and  the  Country,  by  Charles  A. 
Conant  (1904),  will  be  found  interesting.  The  Truth 
About  the  Trusts,  by  John  Moody  (1904),  is  a  statistical 
exhibit  of  capitalized  industry  and  finance  as  it  existed 
at  the  apex  of  the  merger  movement. 

On    the    general   subject   of   industrial   trusts   and 


BIBLIOGRAPHICAL  NOTE  223 

combinations  scores  of  volumes  have  been  written,  some 
of  value  and  many  worthless.  Among  the  informing, 
popular  books  of  the  past  two  decades  may  be  men- 
tioned: The  Story  of  Life  Insurance,  by  Burton  J. 
Hendrick  (1907) ;  Trusts,  or  Industrial  Combinations  and 
Coalitions  in  the  United  States,  by  Ernst  von  Halle 
(1895);  Corporation  Finance,  by  Thomas  L.  Greene 
(1908);  The  Control  of  Trusts,by  John  B.  Clark  (1901); 
Trust  Finance,  by  Edward  Sherwood  Meade  (1903); 
The  Trust  Problem,  by  Jeremiah  W.  Jenks  (1900); 
and  Industrial  Combinations  and  Trusts,  by  William  H. 
Stevens  (1913). 

But  to  learn  the  full  story  of  the  great  masters  of 
capital  of  the  last  generation,  one  must  depend  chiefly 
on  financial  and  investment  periodicals.  Chief  among 
these  are  the  Commercial  and  Financial  Chronicle,  the 
Wall  Street  Journal,  and  the  New  York  Journal  of  Com- 
merce. For  purely  banking  subjects,  the  Bankers  Maga- 
zine is  the  best  source  of  information.  For  full  light  on 
the  subject  of  the  control  of  life  insurance  funds  by 
the  powers  of  Wall  Street,  nothing  better  can  be  found 
than  the  report  of  the  joint  committee  of  the  New 
York  Legislature  appointed  to  investigate  life  insur- 
ance companies  (1906).  The  facts  regarding  the  dis- 
solution of  the  Standard  Oil  Trust  and  the  American 
Tobacco  Company  are  to  be  found  in  the  testimony 
in  the  Supreme  Court  suits  against  those  companies. 
The  best  popular  description  of  the  panic  of  1907  is 
contained  in  Alexander  D.  Noyes's  Forty  Years  of 
American  Finance. 


INDEX 


Adams  Express  Company,  186, 
196 

Albany  and  Susquehanna  Rail- 
road, 21 

Allegheny  (Penn.),  Carnegie 
at,  35 

Allen  and  Ginter  of  Richmond, 
in  American  Tobacco  Com- 
pany, 72 

Amalgamated  Copper  Com- 
pany, 68,  73,  199 

American  Bridge  Company, 
75,  80 

American  Can  Company,  199 

American  Car  and  Foundry 
Company,  73 

American  Hide  and  Leather 
Company,  73 

American  Ice  Company,  138 

American  Line,  110 

American  Smelting  and  Refin- 
ing Company,  73 

American  Steel  and  Wire  Com- 
pany, 74,  81,  82,  83-84, 
106 

American  Steel  Hoop  Com- 
pany, 75,  76,  86 

American  Sugar  Refining  Com- 
pany, 71 

American  Telephone  and  Tele- 
graph Company,  186,  200, 
204-05,  211-12 

American  Tin  Plate  Company, 
75,  76 

American  Tobacco  Company, 
71,  72-73 

American  Woolen  Company, 
73 


Anaconda  Copper  Company, 
68,  178 

Anglo-French  mission  to  float 
American  loan,  164 

Armour,  P.  D.,  63 

Asia,  Harriman  plans  railroad 
in,  149 

Astor,  J.  J.,  60 

Astor  Trust  Company,  184, 
196 

Astors  hold  Illinois  Central 
stock,  91 

Atchison,  Topeka  and  Santa 
Fe  Railroad,  23;  Morgan 
and,  31,  32;  Harriman  and, 
105;  price  of  stock  (1906), 
135;  under  investigation  by 
House  committee  (1913), 
197 

Atlantic  Coast  Line,  107,  116 

Bacon,  Robert,  102,  104 
Baker,  G.  F.,  President  of  First 
National  Bank,  99;  under 
investigation  by  House  com- 
mittee (1913),  183-88,  192, 
194,  196,  200,  202,  207-08, 
217-18 

Baker,  G.  F.,  Jr.,  185,  202 
Baldwin    Locomotive    Works, 

186 

Ballin,  Albert,  quoted,  171 
Baltimore,  Peabody  in,  6 
Baltimore  and  Ohio  Railroad, 
reconstructed    by     Morgan, 
26-27,    29-30,    31;    Morgan 
and  control  of,  32,  106;  and 
Union    Pacific,    115;    Karri- 


225 


INDEX 


Baltimore  and  Ohio  R.R..  Cont'd 
man  and,  149;  and  Penn- 
sylvania Railroad,  153 

Bank  of  North  America,  see 
National  Bank  of  North 
America 

Bankers  Trust  Company,  150, 
184,  185,  196,  201 

Banks,  merchants',  60 

Baring  Brothers  of  London, 
205,  212 

Barings,  known  as  "mer- 
chants," 5;  and  United 
States,  9 

Barney,  C.  T.,  141 

Baruch,  Bernard,  177 

Beebe,  J.  M.,  and  Company  of 
Boston,  10,  20 

Belmont,  August,  9,  20 

Bessemer,  Henry,  steel  process, 
38,  41,  42;  Carnegie  and 
Bessemer  process,  44-45 

Bethlehem  Steel  Company, 
137-38,  167-68 

Boissevain  Brothers,  93 

Bonds,  American,  sold  in  Eng- 
land, 11;  English  buy  Con- 
federate, 15-16;  sale  of 
Union  bonds  in  Germany,  16; 
British  and  French  credits 
in  Great  War,  163-64;  Lib- 
erty, 172,  173-75 

Bowdoin,  G.  S.,  32 

Brice,  Calvin,  25 

Brown  Brothers,  4 

Brownsville  (Tex.),  Stillman 
born  in,  62 

Burns,  Walter,  33 

Canada,  loans  to,  162 
Capital,  meaning  of  term,  1-2 
Carnegie,    Andrew,   early   life, 
35-36;    and     Scott,     36-38; 
first    investments,     37,    89; 
and  iron  industry,  42-45 ;  and 
Bessemer  steel,   44-45;  per- 
sonal characteristics,  47,  90; 
and  Frick,  49,   76;   Mesaba 
ore  fields,  49-51;  sale  of  busi- 


ness, 75-78,  83;  and  Schwab, 
78-80;  competition,  80-82; 
and  Morgan,  83,  109 

Carnegie,  McCandless  and  Com- 
pany, 45 

Carnegie  Steel  Company, 
Moore  offers  to  buy,  77; 
see  also  Carnegie,  sale  of 
business;  Schwab  becomes 
president,  79;  bibliography, 
222 

Case,  J.  I.,  Threshing  Machine 
Company,  199 

Cassatt,  A.  J.,  87,  106,  116,  150 

Central  of  Georgia  Railroad, 
31,  139,  149 

Central  Railroad  of  New  Jer- 
sey, 115,  185,  186,  196,  197 

Chase  National  Bank,  99-100, 
194,  196 

Chemical  Bank,  60  (note) 

Chesapeake  and  Ohio  Rail- 
road, 27,  32,  197 

Chicago,  railroads  between  At- 
lantic and,  25 

Chicago  and  Northwestern 
Railroad,  105,  198 

Chicago  and  Western  Indiana 
Railway,  209,  211 

Chicago,  Burlington  and  Quin- 
cy  Railroad,  100,  101 

Chicago  Elevated  Railways, 
200 

Chicago  Great  Western  Rail- 
way, 185,  197 

Chicago,  Milwaukee  and  St. 
Paul  Railroad,  Stillman  di- 
rector of,  63;  William  Rocke- 
feller and,  63,  65,  67;  and 
Kuhn,  Loeb  and  Company, 
96;  Union  Pacific  and,  105; 
western  extension,  115;  price 
of  stock  (1906),  135:  Mor- 
gan interests  and,  198 

Chicago,  Rock  Island  and 
Pacific  Railroad,  107-08, 
198 

Chicago,  St.  Louis  and  New 
Orleans  Railroad,  92 


INDEX 


227 


Chile,  loan  to,  11 

Citizens'  Passenger  Railroad, 
Carnegie  owns  stock  in,  37 

City  Bank,  New  York,  Taylor 
becomes  president  of,  60; 
nature  of,  60;  location,  60 
(note);  reputation,  61;  Pyne 
as  president,  61-62;  Stillman 
and,  62;  Standard  Oil  Com- 
pany and,  63-64;  Union 
Pacific  and,  65-66,  102; 
becomes  National  City  Bank, 
67;  see  also  National  City 
Bank 

Cleveland,  Rockefeller  in,  52 

Coke,  Prick's  enterprise,  46-49 

Coleman,  William,  44 

Columbia  Oil  Company,  Car- 
negie owns  shares  in,  37 

"Community  of  interest" 
movement,  80,  87,  105,  106, 
118,  134;  see  also  Industrial 
combinations 

Concentration  of  control  of 
money  and  credit,  report  of 
House  investigating  com- 
mittee (1913),  181  et  seq. 

Congress,  House  committee 
investigates  concentration, 
181  et  seq. 

Conneaut  (O.),  Carnegie  plans 
tube  plant  at,  81,  83 

Connellsville,  Frick  coke  king 
of,  48 

Consolidated  Gas  Company  of 
New  York,  69,  200 

Cooke,  Jay,  and  American 
Civil  War  debt,  15,  16-17, 
173;  allies  himself  to  German 
Jewish  interests,  16;  failure, 
17;  government  and  railroad 
financing,  57 

Cordage  Trust,  71 

Coster,  C.  H.,  32,  33,  102 

Cramp,  William,  Ship  and 
Engine  Building  Company, 
185,  199 

Cresson  Springs  (  P  e  n  n  . ) , 
Schwab  from,  78 


Cunard  Line,  110,  112 
Cuttings  hold   Illinois  Central 
stock,  91 

Dabney,  C.  H.,  12 

Dabney,  Morgan  and  Com- 
pany, 12-13,  21 

Davison,  H.  P.,  in  Morgan 
firm,  151;  in  investigation  of 
House  committee  (1913), 
183,  184,  194,  205-06 

Delaware  and  Hudson  Canal 
Company,  21 

Delaware  and  Hudson  Rail- 
road, 196 

Delaware,  Lackawanna  and 
Western  Railroad,  197 

Detroit  Edison  Company,  113 

Deutschland  (submarine),  168 

Diamond  Match  Company,  76, 
166 

Dresser,  D.  L.,  136 

Drew,  Fisk  and  Gould,  30 

Drexel,  A.  J.,  13,  14 

Drexel,  Morgan  and  Com- 
pany, firm  formed,  13,  14; 
rivalry  with  Cooke,  16-17; 
refunding  government  debt, 
19;  and  railroads,  19  et  seq., 
57;  banking,  55;  see  also 
Morgan,  J.  P. 

Dubuque  and  Sioux  City  Rail- 
road, 93,  95 

Duke,  W.,  Sons  and  Company 
of  Durham,  N.  C.,  72 

Duluth,  terminus  of  Great 
Northern,  100 

Duncan,  Sherman  and  Com- 
pany, Morgan  with,  12; 
failure,  13 

East  India  Company,  business 
descendants  of,  6 

Eddyville  (Ky.),  Kelly  at,  39 

Edison  Illuminating  Company 
of  New  York,  69 

Elgin,  Joliet  and  Eastern  Rail- 
way, 74 

England,  see  Great  Britain 


INDEX 


Equitable  Life  Assurance  So- 
ciety, investments  before 
1890,  119;  and  trust  com- 
panies, 122,  126-27;  Harri- 
man  and,  148;  Morgan  and, 
150;  control  by  combination, 
188-94,  196 

Equitable  Trust  Company, 
126-27 

Erie  Railroad,  Morgan  reor- 
ganizes, 30-31,  95;  controlled 
by  Morgan,  32,  105,  116, 
186,  197 

Exchange,  effect  of  payment 
for  war  purchases,  163 

Fabbri,  E.  P.,  32,  33 

Fahnestock,  H.  C.,  185 

Farmers  Loan  and  Trust  Com- 
pany, 196 

Federal  Reserve  Act,  160 

Federal  Steel  Company,  74,  77, 
80,  82,  83,  87 

Field,  Marshall,  85,  88 

Fifth  Avenue  Trust  Company, 
150 

First  National  Bank  of  New 
York,  68,  99-100,  182  ct 
seq. 

First  Security  Company,  185, 
192,  195 

Fish,  Stuyvesant,  91-92,  93, 
95-96 

Flagler,  H.  M.,  59 

Flower,  R.  P.,  77 

Fox- Bourne,  biographer  of 
George  Peabody,  quoted,  7 

France,  J.  S.  Morgan  and 
Company  take  French  loan, 
17-18 

Frick,  H.  C.,  89;  and  coke 
making,  46-49;  and  Carne- 
gie, 49,  76;  and  Mesaba 
Range,  50;  and  Rockefeller, 
51;  director  of  Union  Pa- 
cific, 66;  and  industrial  com- 
bination, 75-76,  79,  86-87, 
88;  Morgan  and,  85,  145; 
and  insurance  companies,  128 


Garrison  (N.  Y.),  Osborne's 
home  at,  91 

Gary,  Judge  E.  H.,  president 
of  Federal  Steel  Company, 
74,  83;  and  steel  trust  merg- 
er, 85,  86,  88 

Gates,  J.  W.,  American  SteeJ 
and  Wire  Company,  74-75, 
81,  106;  and  steel  trust 
merger,  82,  86,  88;  Louis- 
ville and  Nashville  Railroad, 
106-07 

General  Electric  Company, 
112-13,  200 

Georgetown  (D.  C.),  Peabody 

goes  to,  6 

i   Germans      invest      in      Union 
bonds,    16 

Godfrey,  C.  H.,  32 

Goelets  hold  Illinois  Central 
stock,  91 

Gold,  discovered  in  Nevada, 
140  (note);  in  United  States 
during  Great  War,  155,  161, 
170 

Gould,  Jay,  20,  25;  and  Van- 
derbilt,  22;  estate  and  Rocke- 
feller, 67,  115-16 

Great  Britain,  capital  seeks 
American  investment,  8-9; 
New  York  Central  stock 
sold  in,  22;  steel  production 
(1916),  156;  as  international 
banker,  161-62;  loans  to, 
162,  172;  financing  the 
Allies,  171-72;  see  also  Mor- 
gan, J.  S.,  Peabody,  George 

Great  Northern  Railroad,  96, 
99,  100,  113,  135,  186,  198 

Great  War,  155  et  seq. 

Guaranty  Trust  Company, 
New  York  Guarantee  and 
Indemnity  Company  be- 
comes, 127;  Harriman  and, 
148;  Morgan  and,  149,  150, 
184,  201;  resources,  196 

Hanover  National  Bank,  63 
Harriman,   E.   H.,  and   Union 


INDEX 


229 


Harriman,  E.  H.,  Cont'd 

Pacific,  65-67.  96-98,  114- 
115,  141;  "community  of 
interest"  idea,  87,  105;  early 
life,  89-90;  and  Illinois  Cen- 
tral, 90-95;  personal  char- 
acteristics, 93;  and  Morgan, 
95,  102-C4,  109,  145,  148; 
and  Hill,  99  et  scq.,  116; 
Northern  Securities  Com- 
pany, 104;  and  insurance 
companies,  128;  death  (1909), 
149;  bibliography,  222 

Harriman,  William,  brother  of 
E.  H.,  90 

Hawley,  Edwin,  106-07 

Hays,  D.  C.,  Harriman  in 
office  of,  89 

Heinze,  F.  A.,  141,  144 

Hepburn,  A.B.,  184 

Hill,  J.  J.,  and  "community  of 
interest"  idea,  87;  and  Harri- 
man, 99  et  seq.,  116;  and 
Morgan,  99,  141 

Hine,  F.  L.,  184,  185,  194,  202, 
209-12 

Hocking  Valley  Railroad  Sys- 
tem, 31,  32 

Homestead  Steel  Works,  79 

Howland,  G.  G.  and  S.,  West 
India  trading  house  of,  59 

Hudson  and  Manhattan  Rail- 
road, 201 

Hughes,  C.  E.,  and  New  York 
insurance  investigation,  132, 
152 

Huntington,  C.  P.,  25, 93, 98, 106 

Hyde,  H.  B.,  126 

Illinois    Central    Railroad,   90- 

95,  96,  97,  100,  116,  149 
Illinois  Steel  Company,  74 
Industrial  combinations,  Stand- 
ard Oil  Company,  52  et  seq. ; 
Sherman    Act     against,    71; 
reorganization     after     1897, 
71-73;  steel  and  iron  inter- 
ests,   73    et    seq.;    railroads, 
89  et  seq.,  113-14;  shipping, 


110-12;  public  utilities,  112- 
113;  report  of  House  inves- 
tigating committee,  181  et  seq. ; 
bibliography,  222-23;  see  also 
names  of  corporations 

Insurance  investigation,  132- 
133,  152;  bibliography,  223 

Interborough  Rapid  Transit 
Company  of  New  York,  194, 
201 

International  Harvester  Com- 
pany, 112,  185,  200 

International  Mercantile  Ma- 
rine Company,  110,  136, 
198 

International  Paper  Company, 
73 

Interstate  Commerce  Com- 
mission and  freight  rates, 
152 

Iron  City  Forge  Company,  43, 
46 

Japan,  United  States  loan    to, 

162 
Jews  in  American  finance,  16, 

27 
Jumbo   mine    in    Nevada,    140 

(note) 

Kansas  City  Terminal  Com- 
pany, 211 

Keene,  J.  R.,  103 

Kelly,  William,  39-42 

Keystone  Bridge  Company,  43 

Kidder,  Peabody  and  Com- 
pany of  Boston  and  New 
York,  182,  202  et  seq. 

Kitchener,  Lord,  and  Schwab, 
167 

Kloman,  Andrew,  43 

Knickerbocker  Trust  Com- 
pany, 141,  144 

Kuhn,  Loeb  and  Company, 
begin  as  merchants,  4;  and 
Union  Pacific,  65-66,  96; 
Harriman  and,  96-97,  102; 
and  Great  Northern,  99; 
investigation  by  House  com- 


230 


INDEX 


Kuhn,  Loeb  and  Co.,  Cont'd 
mittee,    182,    192,    201,    203 

et  seq. 

Labor,  Frick  settles  problems, 
48-49 

Lackawanna  Steel  Company, 
200 

Lament,  of  Morgan  and  Com- 
pany, 183,  184 

Lee,  Higginson  and  Company, 
of  Boston  and  New  York, 
182,  202  et  seq. 

Lehigh  Valley  Railroad,  31, 
106,  186,  197 

Leyland  Line,  110 

Liberty  National  Bank,  184- 
185,  196 

Lincoln  Trust  Company,  145 

Livingston,  James,  90 

Livingston,  Lewis,  90 

London,  Peabody  in,  7-11; 
effect  of  buying  war  material 
in  United  States  on,  165 

Long  Island  Railroad,  21 

Lorain  Steel  Company,  74 

Louisville  and  Nashville  Rail- 
road, 106-07,  116 

Lusitania  (S.  S.),  112 

McCall,  J.  A.,  126 
McCurdy,  R.  A.,  127 
McRoberts,  Samuel,  202 
Manufactures,  cotton  goods  in 

New   England,   6;   steel,   39 

et  seq. ;  coke,  46-49 
Mather,  Samuel,  88 
Mauretania  (S.  S.),  112 
Mellon  and  Frick,  47 
Mercantile  National  Bank,  141, 

144 
Merchants,  financiers  begin  as, 

4-5 

Merritt,  Louis,  50 
Mesaba  ore  fields,  50 
Metropolitan    Life    Insurance 

Company,  128 
Miller,  T.  N.,  42,  43 
Mills,  D.  O.,  88 


Milwaukee,  public  utilities  ac* 
quired  by  North  American 
Company,  113 

Minnesota  Iron  Company.  74 

"Money  Power,"  68,  88 

Moore,  J.  H.,  88 

Moore,  W.  H.,  and  Carnegie, 
76-77;  and  United  States 
Steel  Corporation,  88 

Moore  and  Schley,  146 

Moore  Brothers,  86,  107-08; 
see  also  Moore,  J.  H.,  Moore, 
W.  H. 

Moratorium,  European  coun- 
tries declare,  159;  in  South 
America,  159-60 

Morgan,  J.  P.,  son  of  J.  S.,  11; 
education,  11;  personal  char- 
acteristics, 11,  47;  early 
business  career,  11-12;  in 
New  York,  12;  Dabney, 
Morgan  and  Company,  12- 
13;  Drexel,  Morgan  and 
Company,  13  et  seq.;  and 
the  railroads,  19  et  seq.,  105- 
.106,  107;  called  "Jupiter" 
Morgan,  28;  and  industrial 
movement,  55,  77;  Federal 
Steel  Company,  74;  great 
banker,  75;  Carnegie  and, 
80-83;  steel  trust  merger, 
83-88;  United  States  Steel 
Corporation,  87-88,  109;  and 
Harriman,  95,  102-04,  109, 
145,  148;  and  Hill,  99,  100, 
102-03;  shipping  combina- 
tion, 110-11;  International 
Harvester  Company,  112; 
and  public  utilities,  112-13; 
"community  of  interest," 
117-18;  and  life  insurance 
companies,  128,  150;  Morse 
buys  Central  of  Georgia 
Railroad  from,  139;  and 
panic  of  1907,  145-47;  and 
trust  companies,  150;  re- 
lations with  Great  Britain, 
165;  activities  of  firm  during 
Great  War,  166-67;  firm 


INDEX 


231 


Morgan,  J.  P.,  Cont'd 

investigated  by  House  com- 
mittee, 182  et  seq. ;  bibli- 
ography, 222 

Morgan,  J.  P.,  Jr.,  191,  192, 
194 

Morgan,  J.  S.,  firm  of  J.  S. 
Morgan  and  Company,  7, 
10,  11-14,  17-18,  30;  suc- 
ceeds Peabody,  10-11,  12; 
dinner  given  for,  19;  retires, 
20 

Morgan-Grenfell  (Ltd.)  of  Lon- 
don, 212 

Morgans  as  merchants,  4,  5-6 

Morse,  C.  W.,  138-39,  141, 
144,  149 

Morton,  L.  P.,  17,  20 

Morton  Trust  Company,  150 

Mount  Pleasant,  coke  making 
at,  46 

Munitions,  war  orders,  160- 
161;  American  manufacture 
of,  166,  167-68 

Mutual  Life  Insurance  Com- 
pany, 119,  122,  126,  127, 
148,  149,  186,  192 

National  Bank  of  Commerce, 
150,  194,  196 

National  Bank  of  North  Amer- 
ica, 138,  145 

National  Biscuit  Company, 
76 

National  City  Bank,  67,  68, 
118,  182  et  seq.;  see  also  City 
Bank 

National  City  Company,  195 

National  Steel  Company,  75, 
76 

National  Tube  Company,  75, 80 

Navy  in  April,  1917,  169 

New  York  Central  Railroad, 
Morgan  and,  21-23,  25,  26, 
185,  198,  211;  Harriman 
and,  105;  price  of  stock 
(1906),  135 

New  York  City,  Peabody  in, 
6;  J.  P.  Morgan  comes  to, 


13;  Standard  Oil  office  in, 
58,  59;  lighting  companies 
brought  under  one  control, 
69;  failure  to  sell  bonds  of, 
144 

New  York  Guarantee  and  In- 
demnity Company,  127 

New  York  Life  Insurance 
Company,  119,  126 

New  York,  New  Haven  and 
Hartford  Railroad,  67,  117, 
185,  198-99 

New  York,  Ontario  and  West- 
ern Railroad,  186,  197 

New  York,  Susquehanna  and 
Western,  186,  197 

Newburyport  (Mass.),  Pea- 
body  from,  6 

Nixon,  Lewis,  137 

North  American  Company, 
113 

Northern  Pacific  Railroad,  ex- 
tension, 23;  Morgan  and, 
31,  32,  99,  102-03,  186,  199; 
Hill  and,  100,  102-03;  Harri- 
man and,  101,  103;  and 
Union  Pacific,  113;  price  of 
stock  (1906),  135 

Northern  Securities  Company, 
104,  109,  113,  131,  152,  186 

Norton,  C.  D.,  184,  202 

Norway,  loans  to,  162 

Ocean  Steamship  Company, 
139 

O'Day,  Daniel,  88 

Ogdensburg  and  Lake  Cham- 
plain  Railroad,  92 

Oliver,  Harry,  50,  51 

Oregon  and  Transcontinental 
Company,  113 

Osborne,  W.  H.,  91-92 

Panics  (1893),  70;  (1907),  134 
et  seq. ;  bibliography,  223 

Park  Bank,  60  (note) 

Payne,  O.  H.,  59,  69 

Peabody,  George,  early  life, 
6-7;  in  London,  7-10;  estab- 


232 


INDEX 


Peabody,  George,  Cont'd 

lishes  firm  of  George  Pea- 
body  and  Company,  7; 
firm  becomes  J.  S.  Morgan 
and  Company,  7,  11;  death 
(1869),  10;  statue,  10 

Peabody,  G.  F.,  93 

Pennsylvania  Railroad,  Mor- 
gan and,  26;  Scott  in  charge 
of,  36;  Carnegie  and,  43,  81; 
Frick  and,  76;  "community 
of  interest,"  106,  116,  153 

Perkins,  G.  W.,  partner  of 
Morgan,  85,  104,  151;  and 
International  Harvester 
Company,  112;  on  deputa- 
tion to  Washington,  147; 
and  Bankers  Trust  Com- 
pany, 184 

Petroleum  discovered,  52 

Phelps,  Dodge  and  Company, 
60 

Philadelphia,  Peabody  in,  6; 
Drexel  in,  14 

Philadelphia  and  Reading  Rail- 
road, 26,  31;  see  also  Reading 
Railroad 

Philadelphia  Rapid  Transit 
Company,  201 

Phipps,  Henry,  35,43,75,76,77 

Pittsburgh,  Third  National 
Bank,  37;  Carnegie  plans  rod- 
mill  at,  81,  83 

Pittsburgh  Elevator  Company, 
37 

Poor's  Manual,  cited,  24 

Poppenhusen,  Adolph,  21 

Porter,  H.  H.,  88 

Porter,  W.  H.,  184 

Prudential  Life  Insurance  Com- 
pany of  Newark,  128 

Public  utilities,  growth  of  capi- 
talization, 3;  combination, 
112-13 

Pullman  Company,  185,  200 

Pyne,  P.  R.,  61-62 

Railroads,  first  beneficiaries  of 
capitalization,  3;  Morgan 


and,  19  et  seq.,  57;  rebates 
for  Standard  Oil,  56;  Harri- 
man  and  Hill,  89  et  seq.; 
price  of  stocks  (1905-06), 
135;  investigation  by  House 
committee,  196-99;  see  also 
names  of  roads 

Reading  Railroad,  32,  106, 
115,  185,  186,  197;  see  also 
Philadelphia  and  Reading 
Railroad 

Ream,  N.  B.,  85,  88 

Red  Star  Line,  110 

Reid,  D.  G.,  86,  88,  108,  184 

Republican  party  and  pros- 
perity, 71 

Reynolds,  President  of  Con- 
tinental and  Commercial 
National  Bank  of  Chicago, 
214-15 

Richmond  and  West  Point 
Terminal,  28 

Rockefeller,  J.  D.,  44,  89; 
personal  characteristics,  47, 
53;  Lake  Superior  ore  fields, 
50,  51,  84,  86;  and  Standard 
Oil,  52-59;  and  railroads, 
67,  115,  116;  Federal  Steel 
Company,  77;  tries  to  buy 
out  Carnegie,  77-78,  81,  83; 
and  Frick,  87;  and  life  insur- 
ance companies,  128;  and 
panic  of  1907,  146 

Rockefeller,  William,  75,  76, 
151;  and  Standard  Oil,  59; 
and  Stillman,  63;  and  rail- 
roads, 65,  66,  67 

Rogers,  H.  H.,  and  Amalga- 
mated Copper  Company, 
67-68,  73;  and  Frick,  76, 
87;  Morgan  and,  85;  and 
United  States  Steel  Corpora- 
tion, 88;  panic  of  1907,  142; 
death,  150 

Roosevelt,  Theodore,  attacks 
Northern  Securities  Com- 
pany, 131;  deputation  to, 
147 

Rothschild,  Nathan,  5 


INDEX 


233 


Rothschilds,  known  as  mer- 
chants, 5;  send  Belmont  to 
New  York,  9;  and  Cooke,  17; 
allies  of  Morgan,  27 

Russian  War,  United  States 
loan  to  Japan  for,  162 

Ryan,  J.  D.,  177 

Ryan,  T.  F.,  150,  187-88 

"S.O.S.,"  or  "Slaves  of  Stet- 
tinius,"  166 

Sage,  Russell,  25 

St.  Louis,  public  utilities  largely 
controlled  by  North  Ameri- 
can Company,  113 

St.  Louis,  Alton  and  Terre 
Haute  Railroad,  93 

St.  Paul,  terminus  of  Northern 
Pacific,  100 

St.  Paul  Railroad,  see  Chicago, 
Milwaukee  and  St.  Paul 
Railroad 

Schiff,  J.  H.,  and  Union  Pa- 
cific, 66;  and  Harriman,  96- 
97;  and  life  insurance  com- 
panies, 128;  in  investigation 
by  House  committee,  187, 
204-05,  206,  215-17 

Schwab,  C.  M.,  and  Carnegie, 
78-79;  "community  of  in- 
terest," 80;  persuades  Mor- 
gan to  buy  out  Carnegie,  82; 
and  United  States  Steel 
Corporation,  88;  deal  with 
United  States  Shipbuilding 
Company,  137;  and  mining, 
141;  part  in  Great  War,  167- 
168,  178-79 

Scott,  Colonel  T.  A.,  36-38, 
43 

Seligmans,  banking  house,  4, 
27 

Sherman  Act  (1890),  71,  147, 
152 

Ship  subsidies,  England  and 
Germany  grant,  111-12 

"Shipbuilding  Trust,"  136 

Shipping  Board,  Schwab  made 
head  of,  178-79 


Silver  discovered  in  Nevada, 
140  (note) 

Simonson,  W.  A.,  194,  202 

"Slaves  of  Stettinius,"  166 

Smith,  Woodward  and  Still- 
man,  cotton  commission  mer- 
chants, 62 

South  African  War,  United 
States  loan  to  Great  Brit- 
ain for,  162 

South  America,  loans  to,  162 

South  Manchurian  Railway 
(China),  149 

Southern  Pacific  Railroad,  93, 
99,  135,  141,  153,  199 

Southern  Railway,  28,  105, 
116,  185,  199,  212 

Spanish-American  War,  84, 
98 

Speyers,  banking  house,  27 

Standard  Oil  Bank,  City  Bank 
known  as,  64 

Standard  Oil  Company,  formed 
(1870),  54-55;  combination, 
56-57,  117-18;  New  York 
office,  58-59;  Standard  Oil 
Trust,  59, 71 ;  and  City  Bank, 
63-64;  investments,  64-65; 
rival  of  steel  interests,  86; 
and  trust  companies,  121; 
suits  against,  152;  bibliogra- 
phy, 221-22,  223 

Steel,  demand  for,  38-39; 
Bessemer  process,  38,  41- 
42,  44-45;  Kelly's  process, 
39-42;  Carnegie  and,  44- 
45,  81;  production  in  1916, 
156 

Steele,  of  Morgan  and  Com- 
pany, 185,  186 

Stettinius,  E.  R.,  166 

Stillman,  James,  75;  early  life, 
62;  and  Rockefeller,  63; 
President  of  City  Bank,  63; 
and  Union  Pacific,  66;  and 
Frick,  87;  panic  of  1907, 
146;  retired,  150-51;  in 
investigation  by  House  com- 
mittee, 187 


234 


INDEX 


Stocks,  of  public  service  corpor- 
ations, 3;  railroad,  117,  134- 
135,  141;  mining  stock  boom, 
139-40 

Stotesbury,  E.  T.,  185 

Submarines  built  in  United 
States,  168 

Sugar  Trust,  71 

Superior,  Lake,  ore  mines,  49- 
51,  87 

Supreme  Court  orders  dissolu- 
tion of  Northern  Securities 
Company,  109 

Suwanee  Iron  Works,  39 

Sweden,  loans  to,  162 

Switzerland,  loans  to,  162 

Taft,  W.  H.,  152 

Talbert,  J.  T.,  202 

Tariff  demand  of  capitalists 
for,  3;  of  1894,  70-71 

Taylor,  Moses,  59,  60,  61 

Tennessee  Coal,  Iron  and  Rail- 
road Company,  146,  147 

Thayer,  Nathaniel,  88 

Thomson,  Edgar,  Steel  Works, 
45,  78,  79 

Thomson,  J.  E.,  43 

Tilden,  S.  J.,  19 

Trust  companies,  120  el  seq. 

Trust  Company  of  America, 
145 

Trust  Company  of  the  Repub- 
lic, 136,  137 

Union  Pacific  Railroad,  87, 
199;  policy  of  acquiring 
branch  lines,  23,  100,  101- 
102,  113,  114-15,  141;  reor- 
ganization, 65-67,  96-98; 
wealth,  67,  114;  Harriman 
and,  105,  148-49;  price  of 
stock  (1906),  135,  139;  forced 
to  give  up  holdings,  153 

United  Copper  Company,  141 

United  States  assumes  financ- 
ing of  Allies,  171-72 

United  States  Mortgage  and 
Trust  Company,  127 


United  States  Shipbuilding 
Company,  136-37 

United  States  Steel  Corpora- 
tion, 87-88,  109,  144,  147, 
185,  200 

Vanderbilt,  W.  H.,  20,  21-23, 
26 

Vanderlip,  F.  A.,  118,  151,  194, 
202 

Venango  County  (Penn.),  pe- 
troleum discovered  in,  52 

Villard,  Henry,  113 

Wabash,  St.  Louis  and  Pacific 
Railroad,  93 

Wall  Street,  Standard  Oil 
influence,  58-59;  becomes 
center  of  finance,  61;  and 
industrial  combination,  72; 
as  international  money  mar- 
ket, 155;  as  maker  of  his- 
tory, 156  et  seq. ;  stock  mar- 
ket closed  (1914),  157-58;  re- 
opening of  Stock  Exchange, 
158-59;  becomes  industrial 
mart,  165;  bibliography,  222 

Walters,  Henry,  107,  116 

War  Industries  Board,   177 

Wealth,  in  1890,  4;  growth,  4; 
see  also  Gold 

West  Shore  Railroad,  26 

Western  Maryland  Railroad, 
116 

Western  Union  Telegraph  Com- 
pany, 201 

Wheat  crop  of  1914,  160 

Whiskey  Trust,  71 

White  Star  Line,  110 

Whitney,  W.  C.,  68-69 

Wiggin,  A.  H.,  194 

Wilson,  Woodrow,  on  credits 
to  Allies,  170-71;  and  Ba- 
ruch,  177 

Woodruff  Sleeping  Car  Com- 
pany, Carnegie  owns  shares 
in,  37 

Woodward,  J.  T.,  63 

Wright,  J.  H.,  32,  33 


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